Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed Canara Robeco Emerging Equities Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Canara Robeco Emerging Equities Fund is a popular scheme in the Large & Midcap Fund category that has delivered impressive growth across different time spans, resulting in substantial wealth creation for its long-term investors.

What is the growth of Rs 10,000 invested in Canara Robeco Emerging Equities Fund five years ago?

Past performance is not an indicator of future returns
Data as of October 18, 2023 

Incepted in March 2005, Canara Robeco Emerging Equities Fund originally positioned itself as a fund with a mid and small-cap inclination, allocating over 60% of its assets to stocks within these market cap segments. However, post its reclassification in 2018 under the Large & Midcap mandate, the fund has substantially reduced its exposure to small-cap stocks, while simultaneously hiking its exposure to large-cap stocks. It now maintains diversification across large-cap and mid-cap stocks, with a minimum allocation of 35% to each.

Canara Robeco Emerging Equities Fund has established a track record of generating superior returns compared to the category average and the benchmark Nifty LargeMidcap 250 – TRI over longer time periods. Consequently, it has turned out to be one of the most popular schemes in the Large & Midcap Fund category.

The fund has fared well under the supervision of Mr Shridatta Bhandwaldar, who focuses on identifying high-quality growth-oriented businesses available at respectable valuations. Over the last five years, Canara Robeco Emerging Equities Fund has generated compounded annualised returns (CAGR) of around 17.9% CAGR, which is nearly in line with the 18% CAGR generated by its benchmark index. An investment of Rs 10,000 in Canara Robeco Emerging Equities Fund five years back would have now appreciated to Rs 22,830 compared to a valuation of Rs 22,877 for a simultaneous investment in its benchmark.

While the fund recorded superior growth during the past mid and small-cap rallies when its portfolio was biased towards mid and small-caps, it has also fared well under its current large & mid-cap mandate. Canara Robeco Emerging Equities Fund has the potential to reward its investors with substantial long-term wealth creation.

How has Canara Robeco Emerging Equities Fund performed in the past?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
HDFC Large and Mid Cap Fund 11,198 26.37 11.48 32.72 19.27 15.30 16.17 0.44
ICICI Pru Large & Mid Cap Fund 9,365 21.82 11.33 32.62 18.57 15.40 15.40 0.46
SBI Large & Midcap Fund 14,682 16.51 10.59 28.26 18.36 15.01 14.93 0.41
Kotak Equity Opp Fund 15,013 22.56 11.93 25.93 19.89 15.90 13.86 0.40
DSP Equity Opportunities Fund 8,869 21.76 7.52 25.69 17.81 14.48 14.81 0.38
Mirae Asset Emerging Bluechip Fund 28,439 20.71 5.57 25.45 20.36 17.50 14.75 0.37
Axis Growth Opp Fund 9,686 19.72 4.73 25.35 16.68 0.32
Sundaram Large and Mid Cap Fund 5,477 15.58 4.67 24.28 16.91 14.62 15.15 0.37
Canara Rob Emerg Equities Fund 17,939 13.13 3.90 23.00 17.93 15.47 14.74 0.34
Aditya Birla SL Equity Advantage Fund 5,244 15.69 -1.10 19.55 14.22 11.09 17.13 0.25
NIFTY LargeMidcap 250 – TRI 20.55 7.87 26.89 17.98 15.35 15.62 0.37

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of October 18, 2023
(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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

In the past, Canara Robeco Emerging Equities Fund has frequently secured its position among the top quartile performers and even surpassed its benchmark and category average over longer time periods. During its journey of over 18 years, the fund has recorded superior long-term performance and continues to stand strong in the list of prime contenders in the Large & Midcap Fund category. However, Canara Robeco Emerging Equities Fund has struggled to keep pace with the benchmark and many of its prominent peers in the last couple of years and has trailed substantially in terms of performance.

Despite this, its long-term track record looks satisfactory. Over the 5-year and 7-year time periods, the fund’s performance is broadly in line with the category average and ahead of some of its peers. On a 7-year return basis, Canara Robeco Emerging Equities Fund still stands among the top quartile performers in the category.

However, the recent downturn in the returns profile has negatively impacted its risk-adjusted returns. While Canara Robeco Emerging Equities Fund has registered reasonable volatility that is slightly lower than the benchmark, and many of its prominent category peers, its Sharpe and Sortino ratios are currently lower than the benchmark and the category average. That said, backed by prudent investment strategies, Canara Robeco Emerging Equities Fund has the potential to bounce back and compensate investors with sound risk-adjusted returns in the long run.

[Read: Best Large & Mid Cap Mutual Funds to Invest in 2023 – Top Performing Large & Mid Cap Mutual Funds in India]

What is the investment strategy of Canara Robeco Emerging Equities Fund?

Categorised under Large & Midcap Fund, Canara Robeco Emerging Equities Fund 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. It holds a well-diversified portfolio of 55 to 65 stocks.

Canara Robeco Emerging Equities Fund is a growth-oriented fund where the fund manager looks for high-growth companies (across sectors) with the ability to generate capital, and backed by good management. The fund manager gives high emphasis to BMV (Business, Management and Valuation). Accordingly, while evaluating companies, the fund manager emphasises on its qualitative features, management, and governance. He also looks at quantitative parameters by analysing the balance sheet and use valuation to play with 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 prefers companies with high RoE or RoCE, companies with competitive advantage, niche businesses with high and increasing profit margin, consistent growth potential companies, companies positioned to benefit from a dynamically changing market environment, huge untapped market potential, and so on.

The fund manager follows a mix of the top-down and bottom-up approach to investing and looks at macros to identify favourable sectors and pick the best companies within those sector. Canara Robeco Emerging Equities Fund has recorded a low turnover ratio of around 20% to 25% in the last one year, signifying the conviction the fund managers have in their stock picks.

What are the top portfolio holdings in Canara Robeco Emerging Equities Fund?

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Holding in (%) as of September 30, 2023
(Source: ACE MF) 

As of September 30, 2023, Canara Robeco Emerging Equities Fund held a well-diversified portfolio of 67 stocks diversified across market caps and sectors. The fund held its top exposure in large-cap names like ICICI Bank, HDFC Bank, Cholamandalam Investment & Finance Company, Reliance Industries, and Bharat Electronics. The top 10 holdings in the fund’s portfolio together account for about 34.5% 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 or more. The fund managers avoid taking any single stock exposure of more than 3% in the mid-cap and small-cap segments due to liquidity concerns associated with smaller-sized stocks.

In the last 2 years, Canara Robeco Emerging Equities Fund has benefitted from its exposure to stocks like Polycab India, Cholamandalam Investment & Finance Company, TVS Motor Company, ICICI Bank, UNO Minda, Max Healthcare Institute, Bharat Electronics, Axis Bank, and L&T that have helped it generate decent gains for the investors. However, its exposure to Voltas, Infosys, Atul, Gujarat Gas, Mphasis, Whirlpool of India, and Jubilant FoodWorks, among others failed to meet its expectations.

Canara Robeco Emerging Equities Fund’s portfolio is skewed towards Financials, with Banks carrying a substantial 19.4% weightage in the portfolio, complemented by an additional 9% in Finance stocks. This is followed by around 13.8% allocation to Engineering stocks. Auto & Auto Ancillaries, Infotech, and Consumption are among the other high sector concentrations with an allocation of around 4%-6% each. Cement, Pharma, Chemicals, and Petroleum stand among the other prominent sectors in the fund’s portfolio. About 73% of its portfolio is spread across the top 10 sectors.

Is Canara Robeco Emerging Equities Fund suitable for my investment goals and risk tolerance?

Canara Robeco Emerging Equities Fund holds a well-diversified portfolio spread across the large cap and mid cap segments. Its substantial exposure to large caps can act as a cushion against market volatility, while the exposure to mid caps and minor allocation to small caps can give it significant upside potential during market rallies. Thus, it appears well-equipped to deliver returns in line with the broader markets going ahead.

Given the uncertain nature of the equity markets, Canara Robeco Emerging Equities Fund plays it safe by not placing concentrated bets towards any particular sector or set of stocks. The mix of top-down and bottom-up approach helps the fund manager shift to favourable looking sectors while picking quality high-growth stocks from various sectors. This helps it to generate higher alpha for investors. Canara Robeco Mutual Fund implements sound risk management techniques that have proven effective in managing market risks.

Canara Robeco Emerging Equities Fund is suitable for investors looking to benefit from a combined portfolio of large-cap and mid-cap stocks with an investment horizon of at least 5 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

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