The rebound in PMI index for manufacturing and services in the month of January came as pleasant news when there was an eager wait for green shoots of economic recovery amid the on-going slowdown. In addition, RBI mentioned that some high-frequency indicators have turned around and pointed to a lift in the momentum of economic activity.

If these positive indicators sustain, small and mid caps could once again join their large cap peers on its upward trajectory. Moreover, the lack of demand in mid and small caps has made their valuations attractive compared to their large cap counterparts. This expected improvement in market breadth makes it an opportune time to multiply wealth by investing in worthy Multicap Funds that offer the benefit of all the three market caps in one.

Canara Robeco Equity Diversified Fund (CREDF) is one such multicap fund that invests in equity and equity related instruments across large cap, mid cap, small cap stocks with an aim to gain from the India Growth Story.

The fund was launched in September 2003 and currently manages assets worth Rs 1,728 crore. CREDF is managed by Mr Shridatta Bhandwaldar – Head of Equities at Canara Robeco Asset Management (since July 2016) and Mr Miyush Gandhi (since October 2019).

Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Equity Diversified Fund 5 years ago

Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Equity Diversified Fund 5 years ago

 Data as on February 19, 2020
(Source: ACE MF)

CREDF’s performance over the last five years has been reasonable. If you had invested Rs 10,000 in CREDF five years back on February 19, 2015, it would now be worth Rs 15,870 (as calculated on February 19, 2020). This translates into a compounded annualised growth rate of 9.7%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark S&P BSE 500 – TRI would have grown to Rs 14,693, a CAGR of 8%. Notably, the fund trailed the index for most of the period, while managing to catch up only in the last 2 years. Its improved performance in the last couple of years enabled it to find a spot among the top category performers.

Graph 2: Canara Robeco Equity Diversified Fund’s year-on-year performance

Graph 2: Canara Robeco Equity Diversified Fund's year-on-year performance

*YTD as on February 19, 2020
(Source: ACE MF)

Launched in September 2003, CREDF has a performance track record of over 16 years. The year-on-year performance comparison of CREDF with respect to its benchmark S&P BSE 500 – TRI shows that the fund outperformed the index in 4 out of last 10 calendar years, whereas it delivered returns nearly in line with the benchmark in 3 calendar years. The fund trailed the benchmark only in CY 2012 and CY 2016. CREDF has not only done well during market rallies but also has been able to protect the downside during market downturns. The fund’s performance in the last 2 calendar years and in the current year till now has been remarkable amid crash in broader markets.

Table: Canara Robeco Equity Diversified Fund’s performance vis-à-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
JM Multicap Fund 144 9.14 5.78 14.54 13.62 12.36 0.14
Kotak Standard Multicap Fund 30,546 9.63 7.95 14.50 15.07 11.92 0.15
Canara Rob Equity Diver Fund 1,728 9.29 9.30 14.49 10.98 11.55 0.20
Edelweiss Multi-Cap Fund 550 5.54 7.68 14.36 10.61 12.67 0.16
Parag Parikh Long Term Equity Fund 2,784 8.38 9.93 13.67 13.32 8.61 0.24
DSP Equity Fund 3,502 10.33 7.05 13.31 12.14 13.82 0.15
HDFC Equity Fund 23,357 7.88 6.24 13.23 10.64 15.01 0.07
SBI Magnum Multicap Fund 8,760 7.66 6.61 12.79 14.85 11.96 0.12
Principal Multi Cap Growth Fund 723 0.66 3.05 12.70 12.07 14.06 0.09
Motilal Oswal Multicap 35 Fund 13,062 2.89 3.15 12.69 15.89 13.54 0.07
Aditya Birla SL Equity Fund 12,098 4.78 4.63 12.31 13.61 12.41 0.09
UTI Equity Fund 10,650 6.05 9.07 12.02 11.12 12.38 0.17
BNP Paribas Multi Cap Fund 695 6.69 3.66 11.69 12.65 13.06 0.12
Quant Active Fund 10 3.21 6.53 11.59 12.76 13.64 0.10
ICICI Pru Multicap Fund 5,197 5.35 6.33 11.54 12.48 12.40 0.07
Nippon India Multi Cap Fund 10,416 5.25 5.67 11.39 10.00 15.60 0.08
PGIM India Diversified Equity Fund 136 6.02 4.52 11.29 NA 12.99 0.11
Invesco India Multicap Fund 900 -0.62 1.86 10.25 13.00 14.91 0.09
L&T Equity Fund 2,623 1.49 3.51 9.95 10.14 11.58 0.05
Union Multi Cap Fund 325 6.29 5.51 9.84 7.22 10.98 0.10
S&P BSE 500 – TRI 4.93 6.03 12.27 10.48 12.47 0.11

Returns are on a rolling basis and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on February 19, 2020
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

CREDF outpaced the benchmark and category average with a noticeable across rolling period, except for 5-year rolling period where it trailed the category average. The fund’s outperformance in 1-3 year rolling period has been in the range of 2-4 percentage points

CREDF stood among the top performers on a 1-year, 2-year and 3-year rolling period. The other top performers during the 3-year rolling period were JM Multicap FundKotak Standard Multicap FundEdelweiss Multi-Cap Fund, and Parag Parikh Long Term Equity Fund.

In terms of risk-return parameters, CREDF registered lower volatility than the category average and benchmark. Nonetheless, its risk-adjusted returns have been far superior to the benchmark and many category peers.

Investment strategy of Canara Robeco Equity Diversified Fund

Classified as multicap fund, CREDF has the flexibility to invest across market capitalisation. CREDF is a market cap agnostic fund focused on large caps with few high conviction mid-cap and small cap ideas. The fund aims to provide an investment opportunity in the “Best in class” Indian companies with sustainable business models based on “Top Down” as well as “Bottom Up” approach to stock picking with focus on high growth oriented stocks available at reasonable valuation.

While selecting the stocks the fund focuses on the fundamentals of the business, the industry structure, the quality of management sensitivity to economic factors, the financial strength of the company and the key earnings drivers.

Graph 3: Portfolio allocation and market capitalisation trend in Canara Robeco Equity Diversified Fund

Graph 3: Portfolio allocation and market capitalisation trend in Canara Robeco Equity Diversified Fund

Holding (in %) as on January 31, 2020
(Source: ACE MF)

CREDF is mandated to invest minimum 65% of its assets in equity and equity related instruments with the flexibility to invest across market capitalisation. The fund maintains a large cap bias where it allocates 65-75% of its assets. It also holds significant exposure of about 15-25% in mid caps while its small cap exposure has been lower at around 4% average in the last 1 year. The fund’s non-equity exposure is held in the form of cash and equivalents which makes up about 3-7% of its assets. As on January 31, 2020 the fund held 69.5% of its assets in large caps, 22.7% in midcaps and 3.7% in small caps, while the remaining 4.1% of its assets was in cash, debt and others

Graph 4: Top portfolio holdings in Canara Robeco Equity Diversified Fund

Holding (in %) as on January 31, 2020
(Source: ACE MF)

CREDF held a sizeable portfolio of 56 stocks as on January 31, 2020 diversified across various sectors. The top 10 stocks constituted around 45% of its portfolio with HDFC Bank having the highest stocks allocation of 8.7%. ICICI Bank, Infosys, Reliance Industries and Kotak Mahindra Bank were the other prominent stocks in the top 10 holding with allocation in the range of 4-7% each. Rest of the stocks in the top 10 holding had allocation in the range of 2-4%.

Sector wise, the fund has the highest exposure to Banking and Finance stocks with a combine exposure of 37%. Consumption, Infotech and Pharma follow with an exposure of 9.6%, 9.1% and 7%, respectively. Some other prominent sectors in the portfolio are Engineering, Petroleum, Consumer Durables, Cement, among others.

Top contributors

Among the stocks in the portfolio, ICICI Bank contributed the most to CREDF’s portfolio gains in the last one year with a weighted return of around 3.2%. The fund also benefitted from its holdings in Kotak Mahindra Bank, HDFC Bank, Reliance Industries, Whirlpool of India, Asian Paints, etc.

Meanwhile, the fund booked profits in various stocks like SBI, Bata India, Schaeffler India, GAIL (India), L&T Technology Services, Indraprastha Gas and Kansai Nerolac Paints.

Suitability of Canara Robeco Equity Diversified Fund

CREDF has shown a turnaround in performance in the last couple of years, rewarding its investors with superior risk-adjusted returns. The fund has invested in a well-diversified portfolio of stocks across market capitalisation. While large caps can render stability and liquidity to the portfolio, select mid and small cap companies can yield higher returns in the long term. However, the presence of mid and small caps increases the portfolio risk. Furthermore, CREDF’s high exposure to financial services could prove risky if any of these sectors come under pressure. This makes it suitable for investors with high risk appetite and investment horizon of at least 5 years.

Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here


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