Canara Robeco Equity Hybrid: Best of equity and debt

The fund has delivered annualised returns of 17% in the past 10 years

Investors seeking relatively safer bets than pure equity funds in the current volatile market can consider the aggressive hybrid funds category. The hybrid investment strategy gives you the benefit of the growth potential of equity and the advantage of lower-risk debt securities.

Canara Robeco Equity Hybrid is one such fund. It allocates at least 65 per cent to equity and the rest to debt. The scheme actively shifts its allocation between equity and debt, which has helped it tide over volatility better in the equity market.

Performance

Canara Robeco Equity Hybrid had lost favour with investors during 2016 and 2017, given its allocation to some troubled sectors, including pharma and software. However, the fund made a comeback in 2018, and ranks among the top five, thanks to its strategy of increasing allocation to debt assets, compared with peer schemes.

It has delivered -2, 11, 16 and 17 per cent compound annualised returns during one, three, five and 10 years, respectively, while the category posted -7, 10, 13 and 15 per cent returns.

Portfolio

The scheme holds quality blue-chip stocks and highest-rated debt securities. The fund actively shifts its equity allocation between 66 per cent and 76 per cent of its assets, depending on market phases.

The fund follows a multi-cap approach and churns its portfolio actively.

For instance, in 2013-2014, the fund increased its mid-cap exposure up to 21 per cent of the overall portfolio. Currently, the exposure to mid-cap stocks has been reduced to 3 per cent (as of December 2018).

The portfolio is well-diversified across a large number of stocks (51 stocks as of December 2018) which mitigates concentration risk.

On the debt side, the fixed-income allocation is actively managed, following a blend of accrual and duration strategy. A look at the last five years’ debt portfolio shows that the scheme has invested only in highest-rated AAA and AA+ corporate bonds and government securities to minimise credit risk. The fund manager takes active duration calls. The scheme has gradually pruned exposure to government securities while increasing exposure to NCDs (currently at 15 per cent).

Over the past three years, the average maturity of the portfolio has come down to 1-2 years from 18-19 years. Currently, the fund follows an accrual strategy with an average maturity of two years.

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