With uncertainties arising due to the second wave of COVID-19 pandemic, many investors are now keeping a close eye on their investments and making required adjustments if any, to prevent the instability that occurred last year with their investment portfolio.

Investors need to take into account that the key to intelligent investing is diversification. If you have a diversified investment portfolio, it will mitigate the risk by absorbing shocks of high market volatility and allow you to generate better risk-adjusted returns.

However, it has been observed that over-diversification may not offer much value to your portfolio and can even impact the returns. This is why some mutual funds prefer to invest in a compact portfolio of stocks in which they have high conviction.

You see, companies with different market caps have distinct risk/return characteristics and tend to perform differently depending on market conditions. By focusing on a limited number of stocks within a sector/market cap/theme that are expected to do well over a period, mutual funds can potentially generate superior returns.

Focused fund is one such equity mutual fund category that follows investment strategy of having a concentrated portfolio of high conviction stocks across the market capitalization. Focused funds are required to state the area of its focus viz. large-cap, multi-cap, large and mid-cap, etc. As mandated by SEBI focused funds can have an exposure of maximum 30 stocks in their portfolio and these are handpicked high quality stocks by the fund manager.

Canara Robeco Mutual Fund has launched Canara Robeco Focused Equity Fund; it is an open-ended equity scheme investing in maximum of 30 stocks in large cap, mid cap, and small cap companies. This scheme will endeavour to achieve its investment objective by building a concentrated portfolio of 30 high conviction stocks across the market capitalization.

Table 1: Details of Canara Robeco Focused Equity Fund

Type An open-ended equity scheme investing in maximum of 30 stocks in large cap, mid cap and small cap companies. Category Focused Equity Fund
Investment Objective The investment objective of the scheme is to generate long-term capital appreciation/income by investing in equity and equity related instruments across market capitalization of up to 30 companies. However, there can be no assurance that the investment objective of the Scheme will be realized.
Min. Investment Rs 5000/- and in multiples of Re 1 thereafter. Additional purchase Rs 1000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
SIP/STP/SWP Available
  • Direct
  • Regular
  • Growth
  • Income Distribution cum Capital Withdrawal Option
Entry Load Not Applicable Exit Load
  • 1% – if redeemed/switched out within 365 days from the date of allotment.
  • Nil – if redeemed/switched out after 365 days from the date of allotment
Fund Manager Mr Shridatta Bhandwaldar Benchmark Index S&P BSE 500 TRI
Issue Opens: April 23, 2021 Issue Closes: May 07, 2021

(Source: Scheme Information Document

What will be the Investment Strategy for Canara Robeco Focused Equity Fund?

Canara Robeco Focused Equity Fund will invest in a concentrated portfolio of maximum 30 stocks where the fund manager has high conviction. The fund has the flexibility to invest in equity and equity related instruments across market capitalisation.

This scheme will create an investment universe with In-house fundamental research, macro research and intelligence. The fund aims to follow an active investment style and will seek to invest in companies with strong competitive position, ability to increase the market share, good financial track record along with quality management that may help them to achieve good growth over medium to long term.

The Fund Manager Mr Shridatta Bhandwaldar said, “The investment approach to our focussed equity fund would be three-pronged. One would be to identify leaders who have highest market share and industry-leading return on equity (ROE), second would be to identify challengers who have the possibility of superior earnings growth v/s leaders due to market share gains and third is identifying new themes, stocks and sectors, which are witnessing cyclical tailwinds. Emerging themes and cyclical tailwind beneficiaries will benefit alpha generation due to meaningful earnings deviations.”

While making investment decisions, besides other factors, the impact of the prevailing economic environment over the medium to long-term prospects of the companies will also be taken into consideration. The fund manager will take concentrated exposure in not more than 30 high conviction stocks in sectors depending on the growth opportunities.

The endeavour is to meet the investment objective, while maintaining a balance between safety, liquidity and return on investments.

About the benchmark

The S&P BSE 500 index is designed to be a broad representation of the Indian market. Consisting of top 500 companies listed at BSE Ltd., the index covers all major industries in the Indian economy. It is calculated using a float-adjusted, market-cap weighted methodology, and the S&P BSE 500 captures more than 95% of the market cap of the listed universe at BSE Ltd.

This scheme apart from investing up to 65% in Equity and Equity-related Instruments, it will also invest up to 35% in Debt and Money Market Instruments, it may also invest up to 10% in Units issued by REITs and InvITs, up to 5% in units of MF schemes and up to 10% in equity ETFs.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation of Canara Robeco Focused Equity Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity-related Instruments* 65 100 Medium to High
Debt and Money Market Instruments 0 35 Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High
Units of MF schemes 0 5 Medium to High
Equity Exchange Traded Funds 0 10 Medium to High

*Subject to overall limit of 30 stocks.

(Source: Scheme Information Document

Who will manage Canara Robeco Focused Equity Fund?

Mr Shridatta Bhandwaldar will be the dedicated fund manager for this scheme.

Mr Shridatta Bhandwaldar is Head of Equities at Canara Robeco Asset Management Company Ltd. and he has over 15 years of experience in financial services industry. Prior to this, he was associated with SBI Pension Fund as Portfolio Manager, Heritage Capital as Senior Equity Analyst, Motilal Oswal Financial Services Ltd. as Equity Analyst and MF Global Securities as Equity Analyst.

His qualification includes, BE (Mechanical) and MMS (Finance). Currently other schemes managed by him are; Canara Robeco Blue Chip Equity FundCanara Robeco Equity Hybrid FundCanara Robeco InfrastructureCanara Robeco Equity Tax Saver FundCanara Robeco Emerging EquitiesCanara Robeco Consumer Trends FundCanara Robeco Small Cap Fund and Canara Robeco Flexi Cap Fund.

Fund Outlook – Canara Robeco Focused Equity Fund

Canara Robeco Focused Equity Fund will follow active investing style and build a concentrated portfolio of high quality and high growth companies across market capitalization. This scheme is similar to a Flexi cap fund that invests dynamically across market capitalization i.e. large cap, mid cap and small cap companies, but a key difference is the holdings will be capped to 30 stocks in the portfolio.

The scheme will invest in stocks of ‘Leaders’ in the market that have proven track record across market phases which will provide stability and compounding to the portfolio, ‘Challengers’ which have improving market share and will lend alpha to the portfolio via earnings growth and ‘Emerging’ companies which hold the potential to be large caps in future. The endeavor is to generate alpha by considering stock selection rather than picking sector.

Focused Funds are a high-risk high-return investment proposition. If the fund manager’s convictions prove to be worthy, investors can benefit from superior returns. However, if the fund manager’s bet go wrong investors may suffer heavy loss due to the concentrated nature of the portfolio.

This scheme is suitable for investors seeking to benefit from diversification across market capitalization through a high conviction portfolio of stocks. You must ensure you have a high-risk appetite to survive the market volatility, an investment horizon of at least 5-7 years and an investment objective that aligns with the fund’s objective.

This article first appeared on PersonalFN here

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