Fund Call . Canara Robeco Emerging Equities: For long-term risk-adjusted returns

Investors with a long-term perspective and who desire to invest in the large- and mid-cap category can consider investing in Canara Robeco Emerging Equities. It has consistently delivered high risk-adjusted returns over the long term.

After SEBI announced its new classification norms, the fund moved into the large- and mid-cap category in May 2018 from the mid-cap category.

Following a sharp fall in the domestic equity market in February and March, large-cap stocks appeared to have bottomed-out, and are now on a revival mode as the Nifty 50 reclaimed the 11,000 mark recently. Both mid- and small-cap stocks are likely to follow suit and outperform their large-cap counterparts when the economic revival happens.

Hence, investing in a combination of large- and mid-cap stocks may provide an upside in returns to investors in the long run.

Over the past one-, three- and five-year periods, the fund has clocked 6.2 per cent, 2.8 per cent and 8.6 per cent, respectively, outpacing the corresponding benchmark’s (Nifty LargeMidcap 250 TRI) positive returns of 0.8 per cent, 2.2 per cent and 6.8 per cent. Over the long term, the scheme has outperformed some of its peers, namely Edelweiss Large and Mid Cap, BOI AXA Large & Mid Cap Equity, and Tata Large and Mid Cap.

To mitigate the market choppiness, investors can opt for the systematic investment plan (SIP) route to buy the units of Canara Robeco Emerging Equities. The scheme has been rated five-star by BusinessLine Portfolio Star Track MF Ratings .

Strategy and performance

The fund has delivered relatively high returns during market rallies and economic expansion phases despite minor underperformance thereafter.

For instance, in 2014 and 2017 bull phases, it delivered 96 per cent and 52 per cent, respectively, while it marginally lagged in 2018 and 2019. The higher returns were boosted by strong rally in the mid-cap segment.

In these periods, the Nifty LargeMidcap 250 TRI had underperformed the bellwether index, the Sensex. That said, the fund has limited the downside well by declining 2.9 per cent year-to-date, while the benchmark has slumped 7.7 per cent.

Over the past two years, the scheme has invested 95-98 per cent in equities.

As on June 2020, about 53 per cent of the assets are deployed in large-cap stocks and 37 per cent in mid-caps; small-caps take the balance share.

Canara Robeco Emerging Equities follows a bottom-up approach while picking stocks.

The top three sectors weigh 44 per cent of the portfolio.

Banking is the top preferred sector. Amid the economic slowdown in the recent period, the fund has trimmed its allocation to banking stocks to 15.3 per cent from as high as 29 per cent in March 2019. It has upped its allocation in sectors such as consumer non-durables, petroleum products, telecom and automobiles. The fund recently added pesticides to its kitty.

The scheme has 58 stocks in its portfolio. It recently increased its stake in some of the stocks — such as Reliance Industries, Bharti Airtel, Infosys and Atul — that have performed well. Moreover, it has added some consumption-based stocks such as as Hindustan Unilever, Tata Consumer Products, SBI Cards and Payment Services and UltraTech Cement over the past three months. Key large-cap stock have delivered good returns in the recent times.

The fund is overweight on financials, chemicals, services automobiles and consumer durables compared with the large- and mid-cap benchmark, while it is underweight on energy, FMCG and software.

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