The mid and small cap index has had a good run in the last one year, outperforming the large cap index with a significant margin. This was despite the fact that the pandemic crisis affected smaller businesses the most. The small and mid cap segment may continue to do well backed by economic revival and government stimulus.

But one needs to remain cautious about the volatility in the segment as compared to large caps. It will be best to have reasonable exposure across market caps.

Large and mid cap funds are a separate set of multi-cap strategy that gives you the opportunity to diversify your investment predominantly across stocks of large and mid-sized companies with some allocation to small caps.

Canara Robeco Emerging Equities Fund (CREEF) is one of the leading players in the large and mid cap funds category that has a superior performance track record of rewarding investors.

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

Data as on December 02, 2020
(Source: ACE MF) 

Originally a mid and small cap biased fund, CREEF underwent a change in mandate to become large and mid cap fund. The fund has managed to put up a decent performance over complete market cycles by participating in the recovery phases and upside market rallies. Over the last five years, CREEF has generated returns at 14.3% CAGR in comparison to 12.1% CAGR generated by its benchmark Nifty LargeMidcap 250 – TRI index. The fund has thus outpaced the benchmark by a noticeable margin of around 2 percentage points. Much of the outperformance over the index in the last 5 years has been registered during the mid and small cap rally seen in 2016-2017, when its portfolio was biased towards mid and small caps; and CREEF has stood strong in the recent corrective phase.

Table: Canara Robeco Emerging Equities Fund’s performance vis-à-vis category peers

Scheme Name	Corpus (Cr.)	1 Year (%)	2 Year (%)	3 Year (%)	5 Year (%)	7 Year (%)	Std Dev	Sharpe
Mirae Asset Emerging Bluechip Fund	11,929	18.98	17.58	10.96	17.33	25.81	22.84	0.085
Edelweiss Large & Mid Cap Fund	528	14.54	12.85	9.16	12.07	15.32	20.58	0.063
Kotak Equity Opp Fund	3,885	15.28	14.89	9.00	13.54	17.24	21.50	0.052
Tata Large & Mid Cap Fund	1,666	11.81	13.24	8.88	11.27	15.91	21.31	0.052
Canara Rob Emerg Equities Fund	6,126	21.35	15.23	8.48	14.24	24.63	22.23	0.054
Invesco India Growth Opp Fund	3,018	8.42	10.28	8.41	12.98	16.50	20.51	0.051
Sundaram Large and Mid Cap Fund	1,247	4.53	8.55	7.37	11.82	16.26	22.83	0.038
SBI Large & Midcap Fund	2,912	11.09	9.87	6.18	10.54	15.79	22.38	0.021
Principal Emerging Bluechip Fund	2,120	18.95	12.80	6.10	14.14	21.62	22.50	0.019
DSP Equity Opportunities Fund	4,869	10.74	12.16	5.99	12.45	16.40	22.52	0.019
Nifty LargeMidcap 250 Index – TRI		15.72	11.05	6.84	12.11	15.94	23.20	0.031

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on December 02, 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.

CREEF has managed to maintain substantial lead over most of its category peers across various time periods. The fund has outperformed its benchmark Nifty LargeMidcap 250 – TRI by a noticeable margin across both short term and long term returns basis. Over longer time periods, CREEF easily ranks among the top schemes, and makes it to the list of prime contenders.

The volatility registered by the fund is nearly in line with the category peers though slightly lower than the benchmark. The fund has managed to generate sound returns to compensate investors for the risk taken. Its Sharpe ratio, a measure of risk-adjusted returns, is among the best in the large and mid-cap funds category.

Investment strategy of Canara Robeco Emerging Equities Fund

Being a large and mid cap fund, CREEF is mandated to invest a minimum 35% of its assets in large-caps, with a simultaneous investment of at least 35% in mid-caps. The fund currently has a balanced exposure across both large caps and midcaps and holds a well-diversified portfolio of 55 to 65 stocks, with focus on quality, growth, and valuation.

While evaluating companies, the fund managers emphasise on its qualitative features, management and governance. They also look at quantitative parameters by analyzing the balance sheet and use valuation to determine the weight, i.e. underweight / overweight position in stocks. The core focus of the fund is on cash flow generating businesses. For the purpose of investment, the fund focuses on companies with low P/E ratio (as compared to the industry P/E), consistent growth potential, operating in niche businesses with high and increasing profit margin, huge untapped market potential, research driven companies, scope for value added services, scope for increasing PE to Growth and so on.

CREEF uses a mix of top-down and bottom-up approach to pick high growth stocks from the list of eligiblecompanies in the large and mid-cap space and makes well use of diversification to manage downside risk. The fund has a reasonable turnover ratio of around 60%.

Graph 2: Top portfolio holdings in Canara Robeco Emerging Equities Fund

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

As on October 31, 2020, CREEF held a well-diversified portfolio of 56 stocks diversified across market caps and sectors. The fund held its top exposure of 5.7% in HDFC Bank, followed by 5.1% in Infosys, 4.9% in ICICI Bank, 4.8% in Reliance Industries, and around 3.2% each in Bajaj Finance and Axis Bank. Ipca Laboratories, Voltas, Cholamandalam Investment & Finance Company, and Atul, were the other names in its top holdings. The top 10 holdings in the fund’s portfolio together account for about 36.2% of the total assets.

CREEF has benefitted immensely from its holdings in Ipca Laboratories, Reliance Industries, Divis Laboratories, Infosys, NavinFlourine International, IRCTC, L&T Infotech, and Balkrishna Industries, which have turned out to be major contributors to its returns in the last one year. Moreover, other mid cap names like Atul, Gujarat Gas, Jubilant FoodWorks, Synegene International, etc. have helped the fund generate significant alpha for its investors.

CREEF’s portfolio is currently skewed towards Financial Services, with Banks carrying around 16.8% weightage in the portfolio, with another 10.4% in Finance stocks. The fund has significant exposure in Consumption, Infotech, Pharma, and Chemicals stocks with an allocation of in the range of 5.10%. Engineering, Petroleum, Consumer Durables, Cement,and Auto ancillaries are among the other prominent sectors in the fund’s portfolio. Notably, around 77% of its portfolio is diversified across top 10 sector holdings.

Suitability

CREEF has delivered promising returns over longer time periods and has proven its ability to generate decent risk-adjusted returns for its investors. In the recent corrective phase, the performance of the fund has been satisfactory, where it has managed to restrict losses reasonably well and maintain the gains made in the prior bull phase. CREEF maintains a well-diversified portfolio of stocks spread across sectors and balanced across large cap and mid cap segment to mitigate risk. However, higher weightage to few sectors such as banking and financial may temporarily increase volatility if the sector comes under pressure for any reason. This makes the fund suitable for aggressive investors having high risk appetite and an investment horizon of more than five 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