Canara Robeco Emerging Equities: Hold

After topping the return charts in 2011-12, Canara Robeco Emerging Equities has slackened in the last one year. Exposure to cyclical sectors such as engineering and out-of-flavour banking stocks led to its underperformance over the past twelve months.

This had a cascading effect on the fund’s three-year performance too. The fund’s ranking across one- and three-year time periods has slipped to mid-quartile levels due to a poor show in the last twelve months. Thanks to the strong performance during the 2009-12 period, the fund’s five-year returns remain healthy at over 26 per cent.

Despite the short-term underperformance, existing investors can retain the units of the fund, given its long-term track record.

The fund did not derive any meaningful benefit from the rally in individual stocks due to excessive diversification. Its top holding, ING Vysya Bank, accounts for a mere 3.7 per cent of the total assets. The fund currently holds almost 63 stocks in its portfolio.

Though the fund has managed to better its benchmark, CNX Midcap, across all time periods, it has lagged behind peers — HDFC Midcap Fund, ICICI Pru Discovery Fund and Religare Invesco Mid N Small Cap Fund. Also, the fund’s one-year returns were lower than the average returns of the category.

Its returns have been higher than the benchmark 78 per cent of the time in the last five years. However, this is lower than that of the above-mentioned peer funds.

Downside containment

Barring the January 2008-March 2009 period, the fund managed to arrest decline in its NAV. For instance, during the period November 2010-December 2011, even as the CNX Midcap lost over 37 per cent, the fund managed to curtail the fall in NAV at 25 per cent.

The fund has also been successful in raking gains higher than the benchmark during the relief rallies in the last five years.

In addition to the right stock bets and sector allocations, the ability to raise cash levels ahead of market falls also helped the performance. For instance, the fund increased its cash levels to 11 per cent by October 2010, ahead of the market correction through much of 2011.

A monthly investment of Rs 1,000 in the fund would have yielded annual returns in excess of 12 per cent over the last five years.

In the last one year, the fund has increased exposure to auto ancillary stocks — SKF India, Balkrishna Industries and Bharat Forge; Midcap IT companies — Tech Mahindra, Persistent Systems, in addition to pharma and banking stocks. Shares of companies in the engineering and oil and gas space have also been favoured by the fund.

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