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Fund Analysis: Canara Robeco Emerging Equities Fund : Aggressive investment
Wed, Jun 12, 2013
Source : Shoaib Zaman, Citrus Interactive

Canara Robeco Emerging Equities Fund is a mid-cap heavy equity diversified fund with monthly average assets under management at Rs 42.38 crore, as on February, 2013. The fund was launched on February 2005 and is benchmarked against the CNX Midcap.

Performance

The fund’s performance has been extremely poor in the last one year as it fell to third quartile within the category; this period has witnessed under performance in many of the mid-cap funds. Its excellent performance in 2012 and 2010 ensure that the fund is part of the first and second quartile in 3 years and 5 years’ time horizon   

Scheme Name

1 Year

3 Years

5 Years

Canara Rob Emerg Eq Fund-Reg(G)

7.19

6.36

6.25

CNX Midcap

4.65

-1.01

2.22

Category Average

10.24

3.13

4.20

Rank

114 / 149

21 / 137

40 / 120

CAGR Returns

 

 

During calendar years 2008 and in year-to-date performance the fund was in the third quartile among its peer-set of equity diversified funds. Other than that it has managed to maintain in the top quartile despite the frequent change in the fund managers’.

Scheme Name

2008

2009

2010

2011

2012

YTD

Canara Rob Emerg Eq Fund-Reg(G)

-66.40

108.08

28.32

-22.28

48.89

-9.52

CNX Midcap

-60.23

94.85

19.16

-31.00

39.16

-8.07

Category Average

-55.76

83.41

19.35

-24.09

33.81

-4.30

Rank

107 / 113

10 / 126

13 / 135

49 / 143

9 / 148

137 / 152

Absolute returns

 

 

 

 

 

 

Monthly Performance of the fund shows that it has started lagging the peer-set since the start of 2013. That could be due to the underperformance of the midcaps, as reflected in the relative performance of the CNX Midcap index vis-a-vis the category average. The fund being overweight to midcap stocks would have suffered. However, while it has managed to outperform the CNX Midcap Index in 3 out of the last 6 months, the underperformance in Dec ’12 and Apr ’13 is very high and a cause of concern.

Scheme Name

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

Canara Rob Emerg Eq Fund-Reg(G)

5.30

2.57

-3.07

-6.82

-2.31

0.77

CNX Midcap

3.93

4.49

-2.78

-9.78

-2.90

4.43

Category Average

4.20

1.68

-0.50

-6.52

-1.99

3.21

Rank

27 / 149

37 / 150

135 / 150

92 / 150

101 / 150

143 / 150

Absolute Returns


Risk. In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has so far taken a lower level of risk compared to the category median.

Scheme Name

Standard Deviation

Beta

Canara Rob Emerg Eq Fund-Reg(G)

0.826

0.583

Category Median

0.941

0.811

Average over the last three years

 

 

Risk-adjusted Returns. In terms of measures of risk-adjusted return such as Treynor ratio and Sharpe ratio (measured over last three years), the fund has given a higher risk-adjusted returns compared to the category median.

Scheme Name

Treynor

Sharpe

Canara Rob Emerg Eq Fund-Reg(G)

0.022

0.016

Category Median

0.003

0.007

Average over the last three years

 

 

 

Processes

Canara Robeco Emerging Equities Fund is mid-cap equity diversified fund. The fund’s investment strategy states that it should invest a minimum of 65 per cent mid and small cap equity. Mid & Small Cap companies are defined as those which are ranked from 151 to 500 on the basis of market capitalisation. The ranking of the stocks will be reviewed periodically.  For the other 35 per cent the fund can invest in equities of large-cap companies or in domestic debt or money market instruments.

This fund has a higher expense ratio of 2.91 per cent, this is more than 39 basis points higher than the median expense ratio for the category of equity diversified that stands at 2.52 per cent. 

The fund has an exit load of 1 per cent if the investor redeems or switches out within 1 year from the date of allotment. Any redemption or switches after one year has does not levy    an exit load.

Portfolio

Number of equity holdings. As of April 2013, the fund has 56 stocks in its portfolio against the category median of 43. Its average portfolio allocation in the last three years has been 44 stocks, reflecting fairly diversified portfolio for a fund with only Rs 42.38 crore of average AUM.

In the last five years (between May 2008- April 2013), the fund has had an average exposure of only 14.77 per cent to large-cap companies. During this period average exposure to mid-cap companies was at 64.44 per cent and to small cap was 10.14 per cent. It has reduced its exposure to small-cap since July 2012. It has had no exposure to derivatives. Meanwhile, its average exposure to Cash & Cash Equivalents (includes CBLO) during the period was 10.68 per cent.

As on April 2013, exposure to large-cap was at 37.70 per cent, mid-cap level was at 51.63 per cent, small cap is 0.80 per cent and exposure to others (including cash and CBLO) was at 7.41 per cent.

The top five sectors in the portfolio as of April 30, 2013 had an allocation of 35.25 per cent. These include Banks, Software, Pharmaceuticals, Consumer Non Durables and Media & Entertainment. In the last 12 months (May 2012-April 2013) a total of 28 stocks have appeared in all months, and together have accounted between 50.03-to-63.99 per cent of the portfolio. Of these 28 stocks, ING Vyasa has accounted for the higher concentration in most of the months. Its highest exposure to a single instrument has been CBLO in 11 out of 12 months. It has averaged at 7.58 per cent over the last one year.

In the past 12 months the fund manager has had a higher exposure to cyclical stocks, forming around 60 per cent of the portfolio, and 16 per cent in defensive picks and 16 per cent in services.  This may explain the underperformance in the last one year as it has not been a good period of mid caps in general and cyclical stocks in particular within the midcaps.

Some of the stocks that the fund has added to its portfolio in the last six months are Balrampur Chini Mills, Tech Mahindra, LIC Housing Finance and Glenmark Pharmaceuticals, etc. Meanwhile, it has exited stocks like Orient Paper & Industries, India Cements, Glaxosmithkline Consumer Healthcare, Indraprastha Gas, etc. in the last six months.

 Fund Manager

The fund is currently jointly managed by Ravi Gopalkrishnan and Krishna Sanghavi. Both fund managers have taken charge of the fund for the last 7 months.

Ravi Gopalakrishnan has a qualification of MBA (Finance), MS (Finance). He has a total experience of over 20 years. He was Executive Director & CIO-Equities with Pramerica Asset Managers (September 2009 to August 2012). The Pramerica Equity Fund was launched in December 2010. In the year 2011 the fund gave returns of -26.54 per cent when the index fell only -24.62 per cent.

Krishna Sanghavi, 39 years old has a qualification of B.Com, I.C.W.A., M.M.S. (Finance). He has total experience of 17 years. He was Head Equities with Kotak Mahindra Asset Management Company (February 2006 to August 2012).

 

Scheme Name

Returns

2011

2010

2009

2008

Kotak 50(G)

-18

16.3

63.5

-51

Benchmark - CNX Nifty Index

-25

18

71

-52

Kotak Emerging Equity Scheme(G)

-27

21.2

74.2

-66

Benchmark - S&P BSE Mid-Cap

-34

16

102

-67

Kotak Midcap Scheme(G)

-27

28

85.8

-63

Benchmark - CNX Midcap

-31

19.2

94.9

-60

Kotak Opportunities Fund(G)

-23

18.5

76.2

-57

Benchmark - CNX 500 Index

-27

14

83

-57

Kotak Select Focus Fund(G)

-22

20.1

Benchmark - CNX Nifty Index

-25

18

71

-52

View

The fund house has a very high expense ratio within its peers, and the fund has seen too many changes in the fund managers over the last couple of years. This fund scheme alone has seen the fund manager change in 2010, 2011 and latest in 2012, yet the fund has managed to perform consistently over periods. This reflects positively on the internal processes and research team that supports the fund management.

The fund invests in the mid-cap space and has a new fund management team. Given the outlook on mid-cap space, the ride could be quite volatile over the next few months. The new team has been in place for now for over 6 months and has had enough time in which to restructure the portfolio according to their style. Investors with high risk appetite or those comfortable with the style of the new managers may consider investing in this fund right away. The moderate and conservative investors should watch the performance for the next 6 months before making an allocation to this fund.
 
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