Large & Midcap Funds aim to offer wealth-creation opportunities by investing in an optimum mix of large-cap and mid-cap stocks, i.e., the leaders of today as well as the future leaders. Thus, you benefit from the stability and steady growth of large-cap stocks and the high growth potential of mid-cap stocks through a single fund.

Historical data suggests that performance across large-caps and mid-caps differ significantly over any given period. Hence, diversifying investment across large and mid-cap stocks can give you optimal risk-adjusted returns.

In conditions where mid-cap stocks are facing severe stress, the presence of the large-cap component in the portfolio of Large &Midcap funds can offset the volatility. On the other hand, during market uptrends, Large & Midcap Funds can outperform Large-cap Funds due to their significant allocation to mid-cap stocks.

Canara Robeco Emerging Equities Fund is one such Large & Midcap Fund that has stood among the top performers across various market phases has created ample wealth for aggressive investors in the long run.

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

Graph 1

Data as on January 19, 2022
(Source: ACE MF)  

Canara Robeco Emerging Equities Fund has managed to consistently generate superior returns across most market phases and cycles it has witnessed so far. It endeavours to identify and invest in those companies that have the potential to grow as big or even bigger than their global counterparts. During the market crash of 2020, Canara Robeco Emerging Equities Fund managed to contain the downside risk better than the benchmark and many of its peers. In the current bull phase too, it has performed reasonably well compared to its peers even though it has trailed the benchmark. Over the last five years, Canara Robeco Emerging Equities Fund has generated returns at a compounded annual growth rate of around 20.9% CAGR, thus generating an alpha of around 2 percentage points over its benchmark Nifty LargeMidcap 250 – TRI index. An investment of Rs 10,000 in Canara Robeco Emerging Equities Fund five years ago would have now been valued at Rs 25,841.

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

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Axis Growth Opp Fund 5,587 45.59 34.58 30.13 18.44 0.37
Mirae Asset Emerging Bluechip 21,972 37.24 31.27 27.80 22.93 20.60 21.97 0.29
Canara Rob Emerg Equities Fund 12,459 37.50 31.01 25.28 20.90 17.87 21.26 0.27
Quant Large & Mid Cap Fund 47 37.54 34.34 24.36 17.47 16.69 21.44 0.24
Edelweiss Large & Mid Cap Fund 1,139 36.54 28.19 23.80 20.10 14.69 20.39 0.26
Aditya Birla SL Equity Advantage Fund 6,232 38.02 27.80 23.58 17.00 14.65 23.20 0.24
LIC MF Large & Midcap Fund 1,570 37.24 25.30 23.10 18.94 19.77 0.25
Navi Large & Midcap Fund 142 45.90 27.16 23.09 18.07 21.97 0.24
BOI AXA Large & Mid Cap Equity Fund 210 35.38 26.42 22.83 16.29 11.93 20.44 0.24
Kotak Equity Opp Fund 8,663 31.85 24.47 22.73 18.08 15.23 20.89 0.24
Nifty LargeMidcap 250 Index – TRI 34.87 28.18 22.08 18.61 14.85 22.75 0.22

Returns are point to point and in %, calculated using Direct Plan – Growth Option. Those depicted over 1-Yr are compounded annualised.
Data as on January 19, 2022
(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.

Canara Robeco Emerging Equities Fund has delivered substantial returns over its benchmark and the category average across most time periods and stands among top quartile performers over longer time frames. This superior performance has enabled the fund to make it to the list of prime contenders in the Large & Midcap funds category. On a longer 5 year and 7 year time period, the fund has outperformed the benchmark Nifty LargeMidcap 250 – TRI by a CAGR of over 2-3 percentage points. Even on a shorter duration of 1 year, 2 years, and 3 years, the fund has shown a decent lead over the benchmark.

Despite being an aggressively managed fund with a significant allocation to midcaps, Canara Robeco Emerging Equities Fund has registered reasonable volatility, which is lower than the benchmark and some of its prominent category peers. Its Sharpe is much better than the benchmark and the category average, denoting its ability to generate superior risk-adjusted returns for its investors.

Investment strategy of Canara Robeco Emerging Equities Fund

Canara Robeco Emerging Equities Fund is categorized under Large & Midcap funds, 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 midcaps. It holds a well-diversified portfolio of 50 to 60 stocks.

Canara Robeco Emerging Equities Fund is a growth-oriented fund where the fund managers look for high growth companies (across sectors) with the ability to generate capital and backed by good management. They give high emphasis to BMV (Business, Management, and Valuation). Accordingly, while evaluating companies, the fund managers emphasise 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.

The fund managers follow a mix of the top-down and bottom-up approach to investing, look at macros to identify favourable sectors, and pick best companies from the sector. They pick high growth stocks from the eligible universe of companies in the large and mid-cap space and make well use of diversification to manage downside risk. In the last one year the fund had a reasonable turnover ratio of around 40% to 60%.

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

Holding in (%) as of December 31, 2021
(Source: ACE MF)  

As of December 31, 2021, Canara Robeco Emerging Equities Fund held a well-diversified portfolio of 59 stocks diversified across market caps and sectors. The fund held its top exposure in large-cap names like Infosys, ICICI Bank, HDFC Bank, and Reliance Industries. The top 10 holdings in the fund’s portfolio together account for about 34.4% of the total assets. Focusing on long term investment strategy, the target holding period of most stocks in the portfolio is around 2-3 years. The fund managers avoid taking an exposure of more than 2%-3% in single midcap stock due to liquidity concerns associated with stocks in the broader market.

Canara Robeco Emerging Equities Fund has benefitted immensely from its exposure in Minda Industries, Infosys, ICICI Bank, Polycab India, Gujarat Gas, Avenue Supermarts, Bajaj Finance, and Voltas, which have helped it generate significant alpha for investors. The fund also benefitted from its holdings in Gland Pharma, Aditya Birla Fashion and Retail, Navin Flourine International, Reliance Industries, Century Textiles & Industries, among others.

Canara Robeco Emerging Equities Fund’s portfolio is currently skewed towards Financials, with Banks carrying around 16.8% weightage in the portfolio, with another 8.5% in Finance stocks, followed by Infotech, Engineering, Pharma, Auto Ancillaries, Retail, Consumption, Chemicals having an allocation of around 4%-10% each. About 73.8% of its portfolio is spread across the top 10 sectors.

Suitability

Canara Robeco Emerging Equities Fund is backed by strong management systems and processes and has delivered promising returns for its investors over longer time periods. The fund maintains a well-diversified portfolio of stocks spread across sectors and balanced across large-cap and mid-cap segment. The strategy has helped the fund deal with the downside risk to an extent.

Moreover, the performance in the past upside market cycles has been far superior to the benchmark as well as the category average. The mix of 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. Accordingly, Canara Robeco Emerging Equities Fund appears well placed to tide over market volatility in the future.s

Canara Robeco Emerging Equities Fund is suitable for investors with a high risk appetite looking for reasonable exposure across market caps with an investment horizon of at least 5-7 years.

This article first appeared on PersonalFN here


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