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 diverse market phases in the past, resulting in noteworthy wealth creation for its long-term investors. It aims to leverage high-growth opportunities from quality businesses.

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 April 29, 2024
(Source: ACE MF, data collated by PersonalFN) 

Incepted in March 2005, Canara Robeco Emerging Equities Fund was originally positioned as a Mid and Smallcap Fund, under which it allocated over 60% of its assets to stocks within these market cap segments. Since its reclassification in 2018 under the Large & Midcap mandate, the fund has substantially reduced its exposure to small-cap stocks, while simultaneously raising its exposure to large-cap stocks.

It now maintains diversification across large and mid-cap stocks, with a minimum allocation of 35% to each. In the past Canara Robeco Emerging Equities Fund established a track record of consistently generating superior returns compared to the category average and the benchmark Nifty LargeMidcap 250 – TRI over longer time periods. Consequently, Canara Robeco Emerging Equities Fund has turned out to be one of the most popular schemes in the Large & Midcap Fund category, having an AUM of Rs 20,816 crore, the third largest in the category.

Canara Robeco Emerging Equities Fund follows a blend of top-down and bottom-up approaches to identify quality and high-growth stocks that exhibit the potential to become industry leaders in the future. 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.

Though the fund has trailed several of its peers in the last couple of years, its long-term track record is still reasonable. Over the last five years, Canara Robeco Emerging Equities Fund has generated compounded annualised returns (CAGR) of around 19.8% CAGR, which is slightly lower than the 20.8% 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 24,670, compared to a valuation of Rs 25,686 for a simultaneous investment in its benchmark.

How has Canara Robeco Emerging Equities Fund performed on a rolling return basis?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
HDFC Large and Mid Cap Fund 17,314 32.54 19.81 30.19 18.77 16.14 14.93 0.40
ICICI Pru Large & Mid Cap Fund 12,307 28.37 19.71 29.89 18.74 16.31 14.06 0.43
SBI Large & Midcap Fund 21,270 24.38 16.20 26.84 17.94 16.33 13.85 0.35
Kotak Equity Opp Fund 19,861 27.44 16.81 24.84 18.60 16.90 13.34 0.36
Axis Growth Opp Fund 11,739 26.76 11.65 24.04 21.94 15.82 0.28
DSP Equity Opportunities Fund 10,812 27.71 14.22 23.79 17.02 15.67 14.31 0.32
Tata Large & Mid Cap Fund 6,822 24.64 16.48 23.76 18.00 15.77 13.05 0.33
Mirae Asset Large & Midcap Fund 33,619 24.26 11.93 23.76 19.45 18.76 13.92 0.29
Sundaram Large and Mid Cap Fund 6,195 23.09 12.18 23.45 16.20 15.95 14.49 0.29
Canara Rob Emerg Equities Fund 20,816 20.83 11.28 22.37 16.95 16.92 13.89 0.29
NIFTY LargeMidcap 250 – TRI 27.16 15.22 25.45 17.19 16.41 14.88 0.32

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of April 29, 2024
(Source: ACE MF, data collated by PersonalFN)
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 frequently secured its position among the top quartile performers and even surpassed its benchmark over longer time periods. 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.

On a 5-year rolling returns basis, the fund’s performance is broadly in line with the category average and the benchmark. On a 7-year rolling return basis, Canara Robeco Emerging Equities Fund stands among the top quartile performers in the category and has exhibited on par performance compared to the benchmark.

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 ratio is currently lower than the benchmark and several of its peers.

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

Categorized 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. Accordingly, the fund follows a multi-cap portfolio strategy by investing in a diversified portfolio of large and mid-cap stocks. It holds a well-diversified portfolio of 65 to 75 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. 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 margins, consistent growth potential companies, companies positioned to benefit from a dynamically changing market environment, huge untapped market potential, and so on.

The fund managers follow a mix of the top-down and bottom-up approach to investing and look at macros to identify favourable sectors and pick the 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 good use of diversification to manage downside risk.

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

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Holding in (%) as of March 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

As of March 31, 2024, Canara Robeco Emerging Equities Fund held a well-diversified portfolio of 77 stocks diversified across market caps and sectors. The fund held its top exposure in large-cap and mid-cap names such as ICICI Bank, Bharat Electronics, The Indian Hotels Company, TVS Motor Company, and UNO Minda. The top 10 holdings in the fund’s portfolio together account for about 31.2% 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. The fund has recorded a low turnover ratio of around 20% to 45% in the last one year, signifying the conviction the fund managers have in their stock picks.

In the last 2 years, Canara Robeco Emerging Equities Fund has benefitted from its exposure to stocks like Bharat Electronics, Max Healthcare Institute, ICICI Bank, L&T, The Indian Hotels Company, TVS Motor Company, and ABB India that have helped it generate decent gains for the investors. However, its exposure to Infosys, Mphasis, Vinati Organics, and TCI Express among others failed to meet its expectations.

Canara Robeco Emerging Equities Fund’s portfolio is skewed towards Financials, with Banks carrying an allocation of 13.7%, complemented by an additional 8.1% in Finance stocks. The fund also holds substantial exposure to Auto & Auto Ancillaries, Engineering, Healthcare, Infotech, Pharma, Hotels, Consumption, Cement, and Retail, among others. The top 5 sectors account for 49.3% of its assets.

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 which has helped it generate satisfactory gains across various bull and bear market phases in the past. 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.

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 approaches helps the fund manager shift to favourable-looking sectors while picking quality high-growth stocks from various sectors, giving it the potential to generate high alpha for investors.

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

Watch this video to find out the 3 best Large & Midcap Funds for 2024:https://www.youtube.com/embed/E_RbZZJqUjA?si=nf1_Z-a_rnRQyRqv 

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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here


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