The equity market valuations across market capitalisation remain at elevated levels despite the recent correction witnessed due to the second wave of COVID-19. Clearly, the margin of safety has narrowed. The market volatility is likely to continue and some further consolidation cannot be ruled out.
In the current scenario, it would be wise to diversify across market capitalisation via Multi-cap funds or Flexi-cap funds while holding some proportion of your equity allocation in Large-cap funds as well as Mid-cap funds.
This is because, large-caps are established names, and the biggest advantage of having them, is the stability they can provide to your portfolio. Whereas to clock higher returns by assuming very high risk, mid-cap funds can be a part of your portfolio provided you have an investment time horizon of over 5-7 years.
Given that volatility would intensify, if you do not want to go overboard with a pure mid-cap fund or small-cap funds, yet you wish to have a flexible exposure to these market capitalisation segments; consider investing in Flexi Cap Fund.
Canara Robeco Flexi Cap Fund (CRFCF) is a flexi-cap fund that has generated superior returns in the past few years to reward investors with remarkable risk-adjusted returns.
Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Flexi Cap Fund 5 years ago
Data as on May 12, 2021
(Source: ACE MF)
CRFCF endeavours to invest in growth stocks across diverse industries. After witnessing pro-longed underperformance from CY 2015 to 2017, CRFCF came out strongly during the 2018 midcap crash, turning out to be one of the top performers in its category. The fund’s large cap orientation and focus towards index heavyweights helped it sustain the midcap crash and ride the large cap rally too. Since then CRFCF has managed to deliver consistently on the returns front, generating superior risk-adjusted returns for its investors. With a CAGR of 17.1% in the last 5 years, CRFCF has managed to outperform the benchmark S&P BSE 500 – TRI by a compounded annualised return of around 2 percentage points. An investment of Rs 10,000 in CRFCF 5 years back would now be worth Rs 21,987, as against a valuation of Rs 20,252 for the simultaneous investment in the broader index.
Table: Canara Robeco Flexi Cap Fund’s performance vis-à-vis category peers
|Parag Parikh Flexi Cap Fund
|PGIM India Flexi Cap Fund
|UTI Flexi Cap Fund
|Axis Flexi Cap Fund
|Canara Rob Flexi Cap Fund
|DSP Flexi Cap Fund
|Union Flexi Cap Fund
|JM Flexicap Fund
|Kotak Flexicap Fund
|Aditya Birla SL Flexi Cap Fund
|S&P BSE 500 – TRI
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on May 12, 2021
(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.
CRFCF has shown a noticeable turnaround in performance in the last few years and has managed to generate significant lead over the benchmark and the category peers, across time periods. In the last 2-year and 3-year periods the fund’s value has appreciated at 20.7% CAGR and 14.8% CAGR respectively, outpacing the benchmark with a noticeable margin. The superior performance recorded in the last couple of years has helped improve its overall performance track record and stand strong against its popular category peers. Moreover, it has performed at a time when most of its peers found it difficult to even match the market returns.
On risk-return parameters, CRFCF Standard Deviation of 19.7% is much lower volatility when compared to its peers and the benchmark. Its Sharpe ratio (0.16) ranks among the highest in the flexi-cap funds category.
Investment strategy of Canara Robeco Flexi Cap Fund
CRFCF is classified under flexi cap funds that are mandated to hold minimum 65% of its assets in equity and equity related instruments with the flexibility to dynamically allocate assets across market caps without any limit or restriction. CRFCF is a market cap agnostic fund focused on large caps with few high conviction mid-cap and small cap ideas. The fund is positioned as an ‘ALL SEASON FUND” with exposure to industries across market capitalization to remain exposed to lesser volatility compared to other sector funds. It 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 evaluating companies, the fund management gives importance to qualitative features, management and governance. They also look at quantitative parameters by analyzing the balance sheet and use valuation to play with the weight i.e. underweight / overweight position. The core focus of the fund remains on cash flow generating businesses. CRFCF holds a pre-dominant large cap biased portfolio, where at least 70% of its asset is invested into large caps, with the remaining in mid and small-caps. Focusing on long term growth, the fund follows buy and hold investment strategy until the full potential of its holdings are derived.
Graph 2: Top portfolio holdings in Canara Robeco Flexi Cap Fund
Holding in (%) as on April 30, 2021
(Source: ACE MF)
CRFCF usually holds a well-diversified portfolio of stocks spread across market caps, but with a large cap bias. As on April 30, 2021, CRFCF held as many as 58 stocks in the portfolio. The top 10 stock holdings in the portfolio accounted for nearly 43.6% of the total assets. Large cap names like ICICI Bank, HDFC Bank, Infosys, Reliance Industries, Bajaj Finance, TCS, Axis Bank, Tata Steel, and HDFC Ltd., appear in the list of its top portfolio holdings. Most of these stocks have been part of the fund’s core holding for over 2 years now.
CRFCF has immensely benefited from its holding in stocks like Infosys, ICICI Bank, HDFC Bank, Reliance Industries, Bajaj Finance, Divis Laboratories, etc. that have turned out to be major contributors to its returns in the last couple of years. The fund’s portfolio churn has ranged between 60-70% in the last one year signifying occasional churning of a portion of its portfolio.
Nearly one-third of the fund’s portfolio is concentrated to Banking and Finance sector, followed by Infotech. It also has substantial exposure in Consumption, Engineering, Pharma, Petroleum Products, Auto, etc. having an allocation in the range of 3.5% to 8% of its assets. The top 10 sectors together occupied about 79.7% of CRFCF’s portfolio. While the fund is heavily biased towards cyclicals, it holds substantial exposure to sensitive and defensive sectors as well.
CRFCF has registered superior outperformance over the benchmark and the category peers over the last couple of years, and has found a place in the list of top quartile performers. The fund has proven its ability to deliver strong returns and has scored exceptionally well in terms of risk-adjusted returns.
The recent change in CRFCF’s categorisation to Flexi cap Funds may not have any impact on its portfolio strategy because it will continue to hold a large cap bias and maintain a diversified portfolio of quality stocks with a long-term view. Despite being an aggressive growth-oriented fund, CRFCF avoids taking large momentum bets and focuses on quality stock picking. This improves its chances of riding out tough market conditions.
This makes CRFCF suitable for investors with high risk appetite and a long term investment horizon of at least 5 years.