In the current volatile markets, investors with moderately high risk appetite can consider investing in aggressive hybrid equity funds. This strategy provides the benefit of growth opportunities in equities by investing 65-80 per cent while creating a safety net by buying lower-risk debt securities (20-35 per cent).
Canara Robeco Equity Hybrid is a worthy candidate on account of its better returns with lower volatility.
The fund actively moves its allocation between equity and debt, which helps it maintain a good balance despite being focussed on the equity market. The scheme is benchmarked against CRISIL Hybrid 35+65 - Aggressive Index. Over the past one-, three- and five-year periods, the fund has delivered 41 per cent, 12.3 per cent and 13.7 per cent against the benchmark returns of 43.1 per cent, 12.1 per cent and 13.4 per cent respectively.
Although the fund has marginally underperformed the benchmark over the one-year period, it has beaten the benchmark over three- and five-year periods. The fund is among the top quartile performers in its category over the past three-, five- and ten-year time frames.
Performance and strategy
The fund adopts a static rebalancing process and keeps its asset allocations within the suggested limits. The rebalancing also helps book profits at higher levels.
It has maintained its equity allocation below 70 per cent for many years. The allocation went as low as 66.5 per cent in February 2020 when the equity markets witnessed uncertainty. After the sharp plunge in equities in March 2020, the fund gradually began to increase the allocation and it went as high as 74.8 per cent in February 2021. At the moment, equity is 73.6 per cent and the balance is in debt and cash.
After underperforming the aggressive hybrid category average in 2016 and 2017, the fund had revived and managed to outpace the category average in subsequent years. In 2020, it clocked 19.6 per cent gains against category average return of 14.5 per cent.
Among peers, the fund has one of the lowest three-year monthly standard deviation of 4.25, indicating comfort factor on volatility and risk.
Also, Canara Robeco Equity Hybrid generates 0.18 units of return ( above risk-free rate) for every unit of risk undertaken compared to category average of 0.13.
About 57 per cent of the assets is in large-cap stocks, 15 per cent in mid-caps and about 1 per cent in small-caps. Banking is the top sector choice(16.8 per cent allocation), followed by software (10.3 per cent) and finance (6 per cent).
The fund had reduced exposure to the banking sector to a low of 12.6 per cent in May 2020, and thereafter started to increase the allocation as equity markets began to recover.
Its private sector bank picks, have delivered good returns over the past one year. The fund has upped the allocation in banks and software sector in past one year. Recently, it added non-ferrous metal and insurance stocks.
The scheme had reduced exposure to the pricey consumer non-durables, petroleum products and buoyant chemicals sectors since last May.
It holds 56 stocks in the basket and, barring top five stocks, the individual stock allocation is less than 3 per cent.
About 44.7 per cent of the fund’s debt allocation is deployed in the AAA and equivalent instrument and 43 per cent in treasury bills/sovereign while the balance is in reverse repo and net current assets.