Canara Robeco Emerging Equities: Invest :: Business Line

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The recent market fall offers a good opportunity to buy into equity funds for the long-term. For aggressive investors willing to wait for five or more years, equity funds with a bias towards mid- and small-cap stocks may offer stronger return potential.

Investors who fit this description can now consider buying units in Canara Robeco Emerging Equities Fund.

IMPROVING SHOW

Though this fund's five-year record is less inspiring than that of funds such as IDFC Premier Equity or ICICI Pru Discovery, which rule the mid-cap category, the recent improvement in its returns has been strong.

Canara Robeco Emerging Equities' three-year and one-year returns now stand at 20 per cent and a negative 2.5 per cent, respectively.

This compares extremely well with the benchmark CNX Midcap index (11 per cent and negative 12 per cent). The fund has also narrowed the gap with the top rankers in the category.

MANOEUVRABILITY

The fund's small size (Rs 40-crore corpus) is an advantage in the mid-cap category.

In a market starved of both liquidity and good investment options, the fund may be able to deliver good returns from a compact portfolio of stocks picked from the mid and small-cap space.

Mid-cap funds with an asset size of over Rs 1,000 crore may not enjoy this manoeuvrability.

TACTICAL SHIFTS

Canara Robeco Emerging Equities has a flexible mandate that allows it to move up to 35 per cent of its portfolio to debt and money market securities if equity market conditions turn volatile.

While the fund has, in reality, not loaded up on that much debt, it has used this facility to contain downside to the NAV in the volatile equity markets of recent months.

An assessment of the fund's portfolio over the last one year shows that it held fairly high debt holdings of 8-12 per cent in the second half of 2011.

In fact, debt holdings peaked at over 12 per cent in December 2011, when the new market highs gave way to a correction. Debt in the latest portfolio had been trimmed to just over 5 per cent.

As a result of these tactical moves, after losing a lot of value in the 2008 market crash, Canara Robeco Emerging Equities has shown resilience to market downturns in recent years. In 2011, for instance, the fund's NAV lost only 22 per cent.

Its benchmark, the CNX Midcap index, tumbled 31 per cent and the mid-cap fund category lost 25 per cent on an average.

PORTFOLIO

This fund's portfolio choices are materially different from those of larger funds in the mid-cap category.

The April portfolio, for instance, featured just one large cap stock with a market cap of over Rs 10,000 crore. Over three-fourths of the portfolio was devoted to stocks with a market cap of less than Rs 5,000 crore.

The fund's small size has enabled it to take exposures to attractive consumer plays with a low float such as Page Industries, GSK Consumer and Blue Dart that larger funds may not be able to acquire, due to impact costs.

The fund's portfolio, however, features a good mix of sectors with a defensive bias and industrials.

In the last quarter, for instance, Canara Robeco Emerging Equities has cut exposure to media, FMCG and software sectors and has added to pharma and capital goods. Banks remain a top exposure at 14 per cent.