If you prefer the stability of large-caps and the growth potential of mid-caps in the same stock basket, a top performing actively-managed fund from the ‘large and mid-cap’ category can be a good option. Canara Robeco Emerging Equities is among the top performers in this relatively new category of mutual funds that was formed after SEBI’s mutual fund recategorisation exercise in 2018.

In its earlier avatar, the scheme was a pure mid-cap fund (launched in 2005). Canara Robeco Emerging Equities has handled its revised mandate quite deftly, and maintained its track record of above-average performance over the years. Large and mid-cap funds have to invest at least 35 per cent of their assets each in large-cap and mid-cap stocks.

Investors with an investment horizon of at least five years can consider doing lump sum and SIPs in this scheme. With an anticipated correction around the corner, investing in a well-run large and mid-cap fund with above-average downside protection record can be one of the smartest ways to grow your money safely.

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Performance

Canara Robeco Emerging Equities has outperformed its peers over the past several years. It is rated five-star under BusinessLine Portfolio Star Track MF Ratings.

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On a point to point return basis (ended November 3, 2021), the fund is consistently ranked among the top 3 club in the 3-year and 5-year time periods. During these time periods, it has delivered 260-300 basis points alpha over category average on a CAGR basis.

The fund also boasts of eye-catching performance over three and five-year periods on a rolling return basis. The scheme has generated an average three-year return of 20.4 per cent and five-year return of 19.2 per cent over the last ten-year period. During this period, the 3-year and 5-year return for the ten biggest funds in the category was 13.83 per cent and 13.85 per cent, respectively.

In the last three years, the scheme has also managed downsides well, courtesy its downside capture ratio (DCR).. A DCR of 88.5 per cent for the scheme implies it has fallen less during periods when the benchmark index fell and also the category average (93.6 per cent). For instance, from January to the March 2020 low, the scheme lost 500 basis points less than the benchmark index’s 35.3 per cent fall.

The scheme has also captured more of the upside (UCR of 97.6 per cent) during good times in the same period compared to category average (94.6 per cent).

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Portfolio details

In the past 3 years, the scheme has typically allocated 84-95 per cent of its assets to large and mid-cap stocks. It follows the approach of investing in robust growth-oriented businesses with competent management at reasonable valuations. Post reclassification, the small-cap allocation has been brought down to well under 3 per cent from about a third of its portfolio earlier. In tandem, the large-cap allocation has gone up from around 33 per cent in 2017-end to a little over 51 per cent today. Higher large-cap exposure provides better buffer against sharp market falls. The fund’s mid-cap allocation has been boosted from 27 per cent to about 42 per cent now.

Banking has, for last 3 years, occupied the top slot in the scheme portfolio (18.2 per cent of portfolio as of September 2021). Finance (9.5 per cent), software (7.6 per cent), consumer non-durables (5.4 per cent) and pharmaceuticals (5.1 per cent) have been other key sectors across many months. This gives the fund a nice blend of high-beta upside as well a protection element, as these are typically considered defensive segments.

The fund maintains a diversified portfolio of 50-60 stocks. The scheme’s top holdings –HDFC Bank, ICICI Bank, Infosys, RIL, Bajaj Finance, Axis Bank, SBI, Minda Industries, Max Healthcare and Avenue Supermarts — account for about 34 per cent of the corpus. It has one of the lowest concentrations in its top-5 and top-10 stocks than peers and category average, which is an advantage in terms of lowering risk. The fund also follows stringent risk control measures such as maintaining liquidity of the portfolio such that at least 60 per cent of it can be liquidated within 7 working days.