Mutual Funds

Why Canara Robeco Equity Hybrid is a good investment choice

Maulik Madhu | | Updated on: Nov 13, 2021
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You could consider this top performing scheme to build a corpus for a long-term goal such as your child’s education

What better way to kick-start Children’s Day if not by making an early investment to fund your child’s higher education? If you’d like to take the mutual fund route for this, an aggressive hybrid fund can serve your purpose well.

While a children’s fund may seem to be the obvious choice, you need not restrict yourself to one. The existing children’s funds invest in a mix of equity and debt instruments, with a higher allocation to the former in most cases. This makes them fundamentally similar to aggressive hybrid funds that invest aggressively in equity — 65-80 per cent in equity and the remaining 20-35 per cent in debt. While the presence of equity provides a boost to your long-term returns, compared to a pure equity fund, the presence of debt cushions you from the volatility of the equity market. In fact, if you have a higher risk appetite, a pure equity fund too may serve your purpose just as fine, given the long investment period.

Many children’s funds except HDFC Children’s Gift Fund (previous recommendation - https://tinyurl.com/hdfcchildmf) have underperformed some of the top-performing aggressive hybrid funds. So, you can consider doing SIPs in the top-performing Canara Robeco Equity Hybrid Fund for building a corpus for a long-term goal such as your child’s education.

Note that unlike children’s funds, aggressive hybrid funds do not come with any lock-in period.

Portfolio and strategy

Canara Robeco Equity Hybrid Fund (erstwhile Canara Robeco Balance Fund which had a similar equity debt allocation) is among the top funds in its category based on returns and downside protection. The scheme invests 65-77 per cent of its net assets in equity and 15-31 per cent in debt instruments (last five years’ data).

In equity, the scheme follows the GARP or ‘growth at a reasonable price’ strategy. It invests mostly in large-cap and quality mid-cap stocks across sectors. As of September-end 2021, large-caps and mid-caps accounted for 54 per cent and 18 per cent, respectively of the scheme’s net assets. The rest was in debt instruments and cash. In the past too, the small-cap stock allocation has not been much — for instance, 0 to 10 per cent over the last four years. Sector-wise, banking has always been among the top sectors (see pie chart for latest portfolio).

In debt, the scheme invests largely in the highest-rated government securities and AAA corporate bonds. This makes it safe from a credit risk perspective. As of September-end 2021, the entire debt portfolio was invested in such papers. This has been so mostly over the past one year too. In terms of maturity profile, debt papers with up to 12 months and 1-3-year residual maturity accounted for 5 per cent and 12 per cent, respectively, of the portfolio as of September-end 2021. Only a negligible amount was invested in 3-5-year maturity papers. This should provide the scheme ample flexibility to reinvest at better rates once the expected upturn in the rate cycle happens.

Performance record

Based on a rolling return analysis, Canara Robeco Hybrid Equity Fund has outperformed the aggresive hybrid fund category over the last 10 years. The scheme has generated an average 3-year return of 14.0 per cent, 5-year return of 13.6 per cent and 7-year return of 13.9 per cent (all CAGR) between November 2011 and 2021. This is higher than the category’s average 3-year return of 12.2 per cent, 5-year return of 12.0 per cent and 7-year return of 12.1 per cent (all CAGR). Only schemes in existence for at least 10 years have been considered here.

While the scheme returns are not the highest among peers, the strong presence of large-cap stocks in its equity portfolio and of high credit quality papers in its debt portfolio make it a relatively safer bet compared to many peers.

The scheme fares well in terms of downside protection too. A downside capture ratio (DCR) of 62 per cent (less than 100 per cent) with respect to the Sensex TRI implies that the scheme captured less of the market downside when the broader markets fell over the last 10 years. This is at the lower end of the DCR range of 54-108 per cent for aggressive hybrid funds. The lower the ratio, the better it is. The scheme’s standard deviation (SD) of 3.7 per cent too is at the lower end of the 3.6-5.3 per cent SD range for aggressive hybrid funds. A lower SD indicates lower deviation from the average scheme return and hence lower return volatility.

Published on November 13, 2021

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