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In the prevailing uncertain times, investors seeking the safety of large-caps and the growth potential of mid-caps in one compact portfolio can consider Canara Robeco Emerging Equities. A top and consistent performer that is rated five-star under BusinessLine Portfolio Star Track MF Ratings, this actively-managed 'large and mid-cap' scheme has an above-average track record of containing downsides and capturing upsides. Investors with a horizon of at least five years should take the SIP route to invest in this scheme at this time. Utilise the lumpsum route only to take advantage of any deep correction.
Performance
In its earlier avatar, the scheme was a pure mid-cap fund (launched in 2005). Canara Robeco Emerging Equities has handled its revised mandate quite deftly. The new large- and mid-cap category was formed as a result of SEBI's MF recategorisation exercise in 2018. Do note, since the risk associated with large- and mid-cap funds is higher (compared to large-cap funds), the potential to generate better returns is also high.
The fund employs bottom-up stock picking on large- and mid-cap companies and endeavours to select the best among the emerging companies. It invests in high conviction companies with a long-term view. Its performance so far signals that it has been on the right path.
On a point-to-point return basis (ended February 28, 2022), this large- and mid-cap fund is the only one in its category to have beaten benchmark Nifty Large Midcap 250 TRI in 1-, 3-, 5 and 10-year periods. It is also consistently ranked among the top performers in all the aforementioned time periods.
The fund also boasts of solid performance on a rolling return basis. The scheme has generated an average three-year return of 20 per cent, five-year return of 19.7 per cent and seven-year return of 18.9 per cent over the last ten-year period. This compares well with both the benchmark and similar-sized peer funds, while maintaining lower variation in returns (i.e standard deviation).
In the last three years, the scheme has also managed downsides well, as shown by its downside capture ratio (DCR). A DCR of 92.7 per cent for the scheme implies it has fallen less during periods when the benchmark index fell and also the category average (93.9 per cent). The scheme has also captured more of the upside (UCR of 98.2 per cent) during bullish times in the last three years compared to the category average (95.7 per cent).
Portfolio
In the past three years, the scheme has typically allocated 86-96 per cent of its assets to large and mid-cap stocks. Post reclassification, the small-cap allocation has been brought down to well under 3 per cent now. Canara Robeco Emerging Equities' large-cap allocation has gone up to a little over 57 per cent today, the highest levels in last 18 months or so. Higher large-cap exposure provides better buffer against sharp market falls; the average large-cap allocation in category is 52 per cent. The fund's mid-cap allocation stands at about 36 per cent now, also the lowest in nearly 18 months.
Banking, together within finance, has remained the scheme's top sector choice, followed by software, consumer non-durables, pharmaceuticals and chemicals. This gives the fund a nice blend of high-beta upside as well as protection element, as most of these are typically considered defensive segments.
The fund maintains a diversified portfolio of 50-60 stocks. It is betting that private sector banks (ICICI, HDFC, Axis) and NBFCs (Bajaj Finance) will do well against PSBs. It is playing value migration in auto ancillary stocks such as Minda (low-end to high-end and high-cost to low-cost). Balance sheets as well as P&L improvement in select infra firms (L&T) is also a key theme for the scheme. Overall, top 10 holdings of the fund are ICICI Bank, Infosys, HDFC Bank, SBI, RIL, Axis Bank, Bajaj Finance, Minda Industries, Tata Motors and L&T and they account for about 36 per cent of the corpus. The fund also follows stringent risk control measures such as maintaining liquidity of the portfolio such that at least 60 per cent of it can be liquidated within 7 working days, which lends the ability to quickly change portfolio tilt during bearish phases.
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