Mumbai: Seasoned investors eyeing a focused fund in their portfolio with the ability to generate alpha could consider the new fund offer of Canara Robeco Focused Equity Fund, given the strong track record of the fund house in all its existing schemes.
Retail investors, averse to volatility and risks associated with concentrated portfolios, should stay with lower risk products like large-cap funds, index funds or dynamic asset allocation funds.
The fund manager would adopt a three-pronged approach for stock picking. As a first step identify companies that are leaders with the highest market share, ROE/ROCE. Secondly, the fund manager would identify challengers with the possibility of superior earnings growth versus leaders due to market share gains and acceptable average ROE/ROCE of more than 15%.
Finally, the fund manager would look to identify new themes, stocks and sectors which are witnessing cyclical tailwinds. Using this strategy to pick stocks and create a portfolio, the fund manager hopes to generate alpha.
Even though there are several focused funds already, financial planners feel there is merit in the new fund offer due to its strong past performance in the equity space. Several of its existing funds in large, large and midcap, flexicap, ELSS are among the top performers in their respective categories over the last three- and five-year periods.
“The fund house has a good stock selection process which they stick to and have been successful in spotting several stocks across schemes that have generated good alpha,” said Nirav Karkera, head of research, Fisdom.
Some distributors however caution retail investors and first-time investors on adding a focused fund to their portfolio.
“Focused funds have concentrated portfolios where top 10 stocks could account for 55-65% of the portfolio. Investors should understand performance can be volatile, ” said Anup Bhaiya, CEO, Money Honey Financial Services. He feels retail investors or first-time investors who cannot handle volatility are better off with large-cap funds or asset allocation funds.