Aggressive Hybrid Funds are equity-oriented hybrid funds having a mix of equity and debt instruments in their investment portfolio. A combination of these asset classes offers a high level of diversification, hence, lowering the risk as compared to a pure equity funds.
The equity assets in this category of funds range between 65%-80% of its total assets, while debt instruments have an exposure of 20%-35% in the portfolio. Given the high equity allocation, it becomes clear that Aggressive Hybrid Funds are not insulated from market volatility. However, with the cushioning of the debt portfolio, they are better equipped to minimise downside risk when compared to pure equity funds.
However, not all aggressive hybrid funds may be efficient in managing downside risk. Therefore, you need to choose schemes prudently.
Canara Robeco Equity Hybrid Fund (CREHF) is an aggressive hybrid fund that has stood strong in the recent market crash, thus limiting the downside for its investors.
Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Equity Hybrid Fund 5 years ago
Data as on October 27, 2020
(Source: ACE MF)
Launched in February 1993, CREHF is one of the oldest schemes in the Aggressive Hybrid funds category. The fund has managed to stay ahead of some prominent category peers over longer time periods. Being an aggressive hybrid fund, CREHF’s portfolio majorly constitutes of equity and equity related securities along with significant allocation to debt instruments. In the recent market correction, CREHF managed to limit the downside when compared to its benchmark, and has clearly made it to the list of top performers in the ongoing corrective phase. Over the last 5 years, CREHF has appreciated at a CAGR of 10.7% as against 9.6% generated by the benchmark CRISIL Hybrid 35+65 – Aggressive Index. Rs 10,000 invested in the fund would have been worth Rs 16,640, as against a valuation of Rs 15,778 for the simultaneous investment in the benchmark.
Table: Canara Robeco Equity Hybrid Fund’s performance vis-à-vis category peers
|Canara Rob Equity Hybrid Fund||3,438||11.33||14.35||8.94||10.71||15.28||14.19||0.080|
|BNP Paribas Equity Hybrid Fund||452||6.26||14.65||8.72||—||—||14.67||0.079|
|Mirae Asset Hybrid Equity Fund||3,735||7.60||11.65||7.13||11.40||—||16.23||0.056|
|DSP Equity & Bond Fund||5,502||5.51||13.66||6.18||9.82||14.66||16.85||0.028|
|SBI Equity Hybrid Fund||31,226||2.57||10.28||5.99||9.10||14.72||15.38||0.033|
|Kotak Equity Hybrid Fund||1,197||8.00||13.47||5.96||9.50||—||18.44||0.033|
|Edelweiss Aggressive Hybrid Fund||17||4.09||8.67||4.87||7.00||11.53||15.82||0.012|
|HDFC Hybrid Equity Fund||16,198||2.57||6.91||2.93||8.20||14.61||16.37||-0.006|
|Aditya Birla SL Equity Hybrid ’95 Fund||7,647||0.77||4.86||0.80||6.80||12.49||16.90||-0.054|
|ICICI Pru Equity & Debt Fund||16,099||-4.19||2.58||0.69||7.55||12.92||17.12||-0.042|
|CRISIL Hybrid 35+65 – Aggressive Index||8.56||11.63||6.91||9.56||11.87||14.41||0.038|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on October 27, 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.
CREHF has registered an exceptional performance in the last couple of years, and has managed to generate a significant lead over the benchmark and the category peers, across time periods. Over the last 1 to 3 year period, the fund has managed to outperform the benchmark by a healthy margin of around 3 percentage points and stands ahead of its popular category peers that have been struggling with their performance for quite some time. Moreover, it has managed to limit the downside in conditions where most of its prominent hybrid peers have been found falling like ninepins.
On risk return parameters, CREHF has encountered much lower volatility when compared to its peers and reasonable when compared to the benchmark. The fund’s superior outperformance over the last couple of years has helped it evolve in terms of risk adjusted returns. Its Sharpe ratio ranks among the top in the category.
Investment strategy of Canara Robeco Equity Hybrid Fund
CREHF is an Aggressive Hybrid fund that is mandated to invest in a blend of equity and debt instruments to provide optimum returns to the investors. Generally, majority of the fund’s assets is invested in equities and a small portion is allocated to debt securities. Depending on the prevailing market scenario, the fund managers adjust the allocation of equity and debt in the scheme, while maintaining a minimum allocation of 65% in equities.
CREHF follows a GARP (Growth At A Reasonable Price) style of investing, that combines the tenets of both growth and value investing by finding companies that show consistent earnings growth, but available at reasonable valuations. The equity portion of the fund is invested in large caps & quality mid cap stocks with an aim to enhance overall returns through capital appreciation, whereas the debt allocation endeavours to limit the downside risk and is actively managed following a blend of ‘Accrual’ and ‘Duration’ strategy. The fund invests in high quality corporate bonds and money market instruments in order to minimize the credit risk. However, its exposure to instruments issued by private issuers may be subject to credit risk.
Graph 2: Top portfolio holdings in Canara Robeco Equity Hybrid Fund
Holding in (%) as on September 30, 2020
(Source: ACE MF)
CREHF usually holds a well-diversified portfolio of stocks spread across market caps, but with a large cap bias. As on September 30, 2020, CREHF held as many as 51 stocks in the portfolio. The top 10 equity holdings in the portfolio accounted for nearly 35% of the total assets. Large cap names like Infosys, Reliance Industries, HDFC Bank, ICICI Bank, TCS, HUL, Bajaj Finance, Kotak Mahindra Bank, etc. appear in the list of its top portfolio holdings.
CREHF has immensely benefited from its exposure to stocks like Reliance Industries, Navin Fluorine International, Divis Laboratories., Ipca Laboratories, Infosys, Gujarat Gas, Balkrishna Industries, etc. that have turned out to be top contributors to its returns in the last couple of years. However, in the last one year the fund has seen significant erosion in value of its holdings like L&T, Axis Bank, ICICI Bank, Kotak Mahindra Bank, HDFC Bank, among others.
CREHF’s portfolio is majorly concentrated to Banking and Finance sector, along with substantial exposure in Infotech, Consumption, Pharmaceuticals, Petroleum Products, Auto, Engineering, Chemicals, and Cement. The top 10 sectors together occupied about 61% of CREHF’s portfolio.
Around 21% of its assets is invested in debt instruments, of which about 16.3% is currently allocated to high rated Corporate Debt instruments, along with around 5% in G-secs.
CREHF holds a superior performance track record over longer time periods. The long-term investment focus and prudent risk management strategies adopted by the fund may help it deliver superior risk adjusted returns and benefit investors who aim to stay invested in the fund with a long-term view.
CREHF does not resort to taking aggressive calls for extraordinary returns. It focuses on selective stock picking and maintains a diversified portfolio of quality stocks with a long-term view.CanaraRobeco Mutual Fund employs sound risk management techniques that have helped CREHF do well to curb the downside risk even in depressing conditions.
This makes CREHF suitable for investors with moderately high risk appetite and an investment horizon of at least 3 to 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