Canara Robeco Emerging Equities: For investors with a moderate risk appetite

The year 2019 clearly belonged to the large-cap stocks, with mid-caps and small-caps being beaten down during the course of the year. While the situation seems ripe for a correction in large-caps and value-buying in the mid- and small-cap segments, one can never predict the markets.

To help investors ride on rallies in either of them and at the same time limit the downside in case one of the categories go out of favour, funds in the large- and mid-cap segments are ideal .

According to SEBI norms, large- and mid-cap schemes need to hold at least 35 per cent of their portfolio in large-cap stocks and another 35 per cent in mid-cap stocks. Investors can consider Canara Robeco Emerging Equites. Originally a mid-cap fund, it moved to the large- and mid-cap category in May 2018, after SEBI announced its new classification norms. Being a mid-cap fund earlier, it could take exposure of 65 per cent or more to mid-cap stocks, pegging up the risk quotient. As a large- and mid-cap scheme now, the risk quotient has come down. Hence, it is suitable for those with a moderate risk appetite.

Moving to a new category has seen the fund undergo changes in its benchmark — Nifty LargeMidcap 250 TRI now, as against the Nifty Midcap Index and the BSE 200 in the past. While its mettle in the new category is yet to be tested, the fund holds promise, considering its returns are on par with, or better than the broader-market indices (Nifty 500 TRI and BSE 500 TRI) over one-, three- and five-year periods.

Strategy and performance

Canara Robeco Emerging Equities tweaks its asset allocation and sector choices based on market conditions.

For instance, when the markets were on song in 2014 and 2017, the fund held 97-99 per cent in equities.

However, it is quick to go on the defensive when markets turn volatile — 2015, 2018 and 2019 being good examples.

In these periods, the fund cuts back equity exposure to 94-96 per cent. It picks on defensive sectors such as consumer non-durables and pharma to ride on iffy markets, while latching on to cyclicals during a rally.

With large-cap stocks inching up, the fund has slowly brought down exposure to this segment in the past year from a little over 50 per cent to about 45-50 per cent now.

This, along with the fall in the mid- and small-cap space has seen the fund underperform its benchmark by about two percentage points.

Current portfolio

The fund usually holds a well-diversified portfolio of 60-70 stocks, with stakes in its top holdings not exceeding 4-7 per cent.

Banking is the top-sector choice for the fund. After adding banking stocks in 2018 and maintaining the holdings at 28-29 per cent till July 2019, the fund has slightly cut down exposure to this space since August last year. The fund prefers private banks to public sector banks.

AU Small Finance Bank is a recent addition. Consumer non-durable holdings have declined considering the high valuation of stocks in this space.

The fund is betting on consumer spending improving, but is increasing exposure to consumer durables instead.

Jubilant Food Works, ITC and Avenue Supermarkets are other consumer stocks that the fund has added recently.