Canara Robeco Equity Diversified: Invest. Safe and sound

Looking for a safe bet in the current volatile markets? Canara Robeco Equity Diversified Fund fits the bill.

The fund takes exposure to fundamentally strong companies with scope for good growth over time. It fulfils this objective by showing a preference for large-cap stocks (market capitalisation of Rs 7,500 crore and above).

The latest March 2013 portfolio, for example, has an average market capitalisation of around Rs 60,000 crore with 81 per cent of the holdings in large-cap stocks. This approach reduces the risk of the fund as large-caps show greater earnings stability during times of uncertainty. This makes the fund an ideal choice for a conservative investor.

Consistent Performer

What buttresses the investment recommendation is the fund’s ability to latch on to rallies and contain losses during market falls. During the 2011 market fall, for example, while its benchmark — the BSE 200 index — returned (-) 27 per cent, the fund performed better by losing only 16 per cent. Similarly, in the bull market of 2009, the fund earned about 5 percentage points more than the benchmark, giving 89 per cent returns. This ability will stand the fund in good stead in case markets exhibit some direction from hereon.

Overall, the fund sports a steady track record. In the last one-, three- and five-year periods, the fund has outperformed its benchmark by up to seven percentage points. Its 10.3 per cent returns in the last five years compare favourably with established diversified equity funds such as HDFC Equity, HDFC Top 200, Franklin Bluechip and Birla Sun Life Frontline Equity. This makes it a good pick for your core portfolio as well.

Portfolio strategy

The fund consistently holds 70-80 per cent in large-cap stocks. The proportion of mid-cap stocks varies 10-20 per cent. This mix has helped the fund ride on broad based rallies such as the one in 2007 and even narrower ones such as 2010.

During falls, the fund cuts back equity holdings and adds money market and CBLO exposures instead. For example, from about 95 per cent in June 2008, equity holdings came down to 81 per cent by February 2009. At the same time, holdings in money market instruments moved up from 5 per cent to 20-25 per cent.

It was, however, quick to redeploy funds into equities once the markets showed signs of picking up.

The fund has shifted its sector preferences in time to capitalise on market fancies. In early 2009, for instance, petroleum products and telecom were among the top sectors held. Subsequently, allocation to software, which had a good run in the markets in 2009-10, was increased.

Similarly, when markets began correcting in 2011, exposure to consumer non-durables, a defensive, was pegged up. Banks and software are the top sectors held currently. Solid picks from the mid-cap space include Va Tech Wabag and WABCO India.

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