The second wave of COVID-19 has shown a steady decline over the past few days, though the daily cases are still higher than the peak it touched in the first wave.

Moreover, there is a looming fear of a third wave of COVID-19; sadly, however, a large portion of the population is yet to be vaccinated. This could lead to uncertainties about the economic recovery and sustainability of corporate earnings.

Under such circumstances, it is better to be cautious about your investments and have exposure across market caps so you can benefit from the diversification. Large and Mid-Cap Funds are a separate set of the multi-cap strategy that offers investors an opportunity to diversify their investment across stocks of large and mid-sized companies. By investing in large and mid-cap funds, you can gain from the stability of large-caps and high growth potential of mid-caps.

Canara Robeco Emerging Equities Fund (CREEF) is a large and mid-cap fund that has constantly figured among top quartile performers and has rewarded its investors with decent risk-adjusted returns.

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

Data as on May 31, 2021
(Source: ACE MF)

CREEF carries a successful track record of over 16 years to its credit, during which it has not only outperformed the benchmark and its peers across bull market rallies but also fared well in the bear market phases. Classified under large and mid-cap funds, CREEF holds a well-balanced allocation of minimum 35% each in large-cap and mid-cap stocks respectively. Additionally, it offers the benefit of diversification to its investors. It usually holds a reasonably diversified portfolio of around 50 to 60 stocks, with an emphasis on quality and high growth stocks. Over the last five years, CREEF has generated returns at around 19.5% CAGR, as against a compounded annualised return of 17% generated by its benchmark Nifty LargeMidcap 250 – TRI index. Though most of its outperformance in the last 5 years has been registered during the mid and small-cap rally when its portfolio was biased towards mid and small-caps, it has fared well even under its current large and mid-cap mandate.

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	16,602	81.45	26.03	20.89	22.60	24.19	22.86	0.197
Quant Large & Mid Cap Fund	11	62.53	25.86	16.87	16.16	20.10	21.78	0.140
Kotak Equity Opp Fund	5,781	64.38	19.63	16.06	17.38	17.28	21.74	0.151
Tata Large & Mid Cap Fund	2,137	63.57	18.60	15.63	15.33	15.93	21.67	0.136
Edelweiss Large & Mid Cap Fund	716	70.08	21.20	15.59	16.48	15.61	21.13	0.143
DSP Equity Opportunities Fund	5,844	74.02	21.09	15.40	17.34	17.28	23.07	0.131
SBI Large & Midcap Fund	3,684	76.84	19.64	15.19	15.74	16.38	23.05	0.128
Canara Rob Emerg Equities Fund	8,381	69.73	21.20	14.98	19.41	21.28	22.39	0.129
Principal Emerging Bluechip Fund	2,571	73.87	22.63	13.81	18.75	20.10	22.74	0.112
LIC MF Large & Midcap Fund	1,058	63.51	18.88	13.23	17.77	—	20.83	0.110
Nifty LargeMidcap 250 Index – TRI		78.19	20.01	14.22	16.81	15.71	23.57	0.121

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 31, 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.

CREEF has delivered substantial returns over its benchmark and the category average across various time periods in the past and has managed to put up a decent performance over complete market cycles. Over the long term period of 5-7 years, CREEF easily ranks among the top performing schemes and makes to the list of prime contenders in the large and mid cap funds category. Even on a shorter 2-year and 3-year duration, the fund has a decent lead over the benchmark.

Despite being an aggressively managed fund with significant allocation to midcaps, CREEF has registered reasonable volatility, which is well below the benchmark and some of its prominent category peers. The fund is well capable of generating sound returns that compensates investors with superior risk-adjusted returns. Its Sharpe ratio, a measure of risk-adjusted returns, is in line with the benchmark and better than the category average.

Investment strategy of Canara Robeco Emerging Equities Fund

CREEF is categorized under large and mid-cap fund and is mandated to hold at least 35% of its assets in large-caps, with a simultaneous allocation of at least 35% in mid-cap stocks. Accordingly, the fund follows a multi-cap portfolio strategy and prefers an allocation of 50:50 in large-caps and mid-caps. It holds a well-diversified portfolio of 50 to 60 stocks.

CREEF is a growth-oriented fund, where the fund managers look for high growth companies across sectors with the ability to generate capital and good management. The fund gives high emphasis to BMV (Business, Management, and Valuation) and evaluates companies 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. the underweight/overweight position in stocks. The core focus of the fund is on cash-flow generating businesses.

The fund managers follow a mix of the top-down and bottom-up approach to investing, and look at the macros environment to identify favourable sectors to pick the best companies from a particular sector. They pick high growth stocks from the eligible universe of companies in the large and mid-cap space and utilises diversification well to manage downside risk. The fund has a reasonable turnover ratio of around 60% to 70%.

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

Holding in (%) as on April 30, 2021
(Source: ACE MF)

As on April 30, 2021, CREEF held a well-diversified portfolio of 60 stocks diversified across market caps and sectors. The fund held its top exposure in large-cap names such as, HDFC Bank, ICICI Bank, Infosys, Bajaj Finance, and Axis Bank. The top 10 holdings in the fund’s portfolio together account for about 36% of the total assets. Focusing on its long-term investment strategy, the target duration of most stocks in the portfolio is around 2-3 years. The fund managers avoid taking an exposure of more than 2%-2.5% in single mid-cap stock due to liquidity concerns, and hold a long tail of around 20 stocks with an exposure of less than 1% in each stock.

In the last one year, CREEF benefitted immensely from its exposure to stocks such as, ICICI Bank, Bajaj Finance, Cholamandalam Investment & Finance Co., HDFC Bank, Infosys, Gujarat Gas, Reliance Industries, NavinFlourine International, among others, which has helped it generate significant gains for investors.

CREEF’s portfolio is currently skewed towards Financials, with Banks carrying around 16.6% weightage in the portfolio, with another 13.6% in Finance stocks, followed by Infotech, Engineering, and Consumption having an allocation of around 7%-8%. Pharma, Chemicals, Auto Ancillaries, Petroleum Products, Consumer Durables, Cement, Oil & Gas, and Retail stand among the other prominent sectors in the fund’s portfolio. About 75.6% of its portfolio is spread across top 10 sectors.

Suitability

Backed by strong management systems and processes, CREEF has delivered promising returns for its investors over longer time periods. CREEF has managed to contain the downside risk better than the benchmark and many of its peers in the recent market crash of 2020, while it did well to participate in the current bull phase. It is well equipped to face the market volatility going ahead.

CREEF maintains a well-diversified portfolio of stocks spread across sectors and balanced across large-cap and mid-cap segments. The mix of its top-down and bottom-up approach helps the fund managers shift to favourable looking sectors while picking quality high growth stocks from the sector, thus helping it generate higher alpha for investors.

CREEF is suitable for investors with high risk appetite looking for a reasonable exposure across market caps with an investment horizon of at least 5-7 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