A combination of growth and value | Value Research We identify companies that can become leaders of tomorrow, say Ravi Gopalakrishnan and Krishna Sanghvi, fund managers, Canara Robeco Emerging Equities
Interview

A combination of growth and value

We identify companies that can become leaders of tomorrow, say Ravi Gopalakrishnan and Krishna Sanghvi, fund managers, Canara Robeco Emerging Equities

Ravi Gopalakrishnan and Krishna Sanghvi, fund managers, Canara Robeco Emerging Equities, talks about the essential attributes that determine the selection of stocks for their fund.

A combination of growth and value Ravi Gopalakrishnan and Krishna Sanghvi fund managers Canara Robeco Emerging Equities

What is your investment universe?
Canara Robeco Emerging Equities predominantly invests in mid & small cap companies. The fund defines mid & small cap companies as the companies which fall in the range of 151 to 500 ranked on the basis of market capitalisation. The fund seeks to identify those companies which have the potential to become leaders of tomorrow in their respective sectors. In addition the fund may take a small exposure to select large cap companies if there exists an attractive investment opportunity.

What are the essential attributes for the stocks to be in your portfolio?
Canara Robeco Emerging Equities follows a thorough bottom up stock picking approach to identify the best companies in order to invest. This 'growth' oriented style of investing combined with a 'value' approach creates a well diversified portfolio of fundamentally strong companies. This stock-picking strategy is also known as 'GARP' investing: Growth at a Reasonable Price. As of 31st Dec'14 the portfolio is spread across 63 stocks highlighting the diversified nature of the scheme.

The scheme endeavours to identify & invest in companies having certain key attributes like
High growth potential
Strong Management
High Intrinsic Value
Potential for unlocking value through divestiture, demergers, M&A etc.
High operating & financial leverage

What kind of stocks never enters your portfolio?
We aim to invest in fundamentally strong businesses. Thus we intend to avoid investing in highly
leveraged companies, companies with a questionable management record on governance, firms who are solely dependent on policies or any event outcomes to drive growth.

Anything else you would like to add about the fund?
The investment process of Canara Robeco Emerging Equities rests on two vital
cornerstones.

  1. Careful Bottom up Stock Selection with a view of selecting Quality Stocks
    As mid-cap companies are more sensitive towards different macroeconomic scenarios, the performance of these companies can be very volatile. Thus we have a team of research analysts analyzing the all the fundamental attributes, historic performance, the current state of affairs & future expectations. Only once a strong investment case is established, will a company be considered to be taken into the portfolio.
  2. Taking a Long Term View
    We believe in long-term investing. We prefer to stay away from herd behavior & chasing short term trends. We are convinced that not only is such a short term approach very risky but also in the longer run it doesn't pay off. We believe that the only way to create sustainable performance whilst limiting downside risks is by taking a long term view on companies. Reinforcing our beliefs is the fact that over a 3 year period, whenever the benchmark fell, the scheme on average only captured ~56%* of this decrease. On the other hand it was able to benefit from the upside*: in the past 1 year, the scheme captured ~135% of any increase in the benchmark#.
  3. Diversified Portfolio Construct
    Considering that mid cap companies are typically volatile, the portfolio aims to reduce the volatility through adequate diversification. The diversification has historically helped the fund in both, upward and downward market movements as seen in the data highlighted at point 2 above (Taking a Long Term View).

What will you attribute the relatively superior performance of your fund to in recent years?
Canara Robeco Emerging Equities follows a bottom up stock picking approach with the aim to select businesses which have the potential to emerge as blue chips of tomorrow. Through this stock picking strategy, the scheme seeks to invest in high growth potential companies which have competent management, robust business model and high intrinsic value. The fund's preference for good quality companies has helped it weather the bad times and thereby resulted in a healthy performance track record.

Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
The fund believes in taking long term view rather than making event based tactical allocations. While selecting a stock we look at the company's fundamental attributes, historic performance, the current state of affairs & future expectations. We firmly believe that this fundamental research approach helps to identify companies which have the capability of becoming future market leaders. As quality mid cap and small cap companies are at an early stage in their life cycle, one needs to stay invested for 2-3 years to benefit from their growth potential.

Our endeavour is to create a diversified portfolio of stocks which performs well consistently over the long-term as opposed to relying on a few stocks with significantly higher exposure which add to the portfolio risk and volatility.

Please click here to read the analysis of this fund.


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