Mutual Funds

Beats benchmark

Nalinakanthi V | Updated on March 23, 2013

IW24_newspot2 Canara.eps

Investors can retain the units of Canara Robeco Emerging Equities, a mid-cap oriented fund, owing to its reasonable performance over the past several years.

Though the fund has delivered over three- and five-year timeframes, it has not delivered substantial returns like some of its mid-cap peers did in 2012.

With the market carnage continuing, especially in the mid-cap stocks space, investors can take a wait-and-watch approach to this fund before deciding to make any further investments.

Performance and portfolio

The fund has had a decent track record of beating benchmark returns in a revival phase. For instance, during the period April 2009-November 2010, it gained 145 per cent, higher than the 131 per cent gain for the benchmark. Similarly, despite holding almost 7 per cent of its assets in short-term debt instruments, the fund recorded 32 per cent gains during the period December 2011-March 2013, compared with 21 per cent increase in the benchmark.

Barring the period January 2008-April 2009, when the fund lost 63 per cent of its NAV, compared with the 58 per cent decline in the benchmark, the fund has managed to contain downsides in a falling market. For instance, during November 2010-December 2011, the fund declined 21 per cent even as CNX Midcap lost over 31 per cent. However, peer funds such as IDFC Premier Equity and Franklin Blue Chip Smaller Companies have demonstrated better capability to weather volatility.

The fund delivered higher returns than the benchmark over a one-, three-and five-year period. Untimely exit of specific defensive stocks weighed down on the performance over the past one year.

The fund reduced exposure to defensive themes such as consumer staples and healthcare over the last one year. Similarly, missing the rally in pharma names also dragged fund performance. Higher allocation towards cyclical sectors such as industrials also narrowed the out-performance on one-year basis.

The fund currently holds 51 stocks in its portfolio, thereby minimising concentration risk. The top 10 stocks accounted for 38 per cent of the assets. Currently, 11 per cent of the total assets are parked in debt instruments as the markets have turned quite volatile.

The portfolio valuation remains comfortable at less than 16 times on a historical twelve-month earnings basis, lower than the average 18 times for the category. Traditionally the fund invests almost 90 per cent of its assets in mid-cap stocks while small-cap stocks account for the remaining 10 per cent. It consciously prefers fundamentally sound stocks over momentum stocks. This may hold the fund in good stead in the long run.

Published on March 23, 2013

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