Canara Robeco Infrastructure fund: Building on the pick-up

With some signs of revival in the economy, investors with a higher risk appetite could allocate a part of their portfolio to a good infrastructure-themed fund. For one, the increase in government spending on infrastructure projects in the last six months is already leading to traction in some pockets, such as roads and power distribution. A sustainable pick-up in the investment cycle will benefit the engineering and manufacturing sector. Add to this, interest rates that are finally heading south, will provide some respite to indebted infrastructure companies.

Of the infrastructure funds, Canara Robeco Infrastructure ranks within the top three over one-, three- and five-year time horizons. In the last one year, the fund has delivered 10.7 per cent return, when its benchmark S&P BSE 100 slipped 2.7 per cent. The fund has also beaten Franklin Build India (which topped the charts over three- and five-year time periods), in the last one year.

Betting on infra

Canara Robeco Infrastructure has a portfolio of stocks mainly in the energy, engineering and construction space. This contrasts with Franklin Build India Fund, which doesn’t limit itself to pure infrastructure-led sectors or stocks. While this pegs up the risk at a higher notch, it also allows more room to capitalise on opportunities in the infra space.

The divergence in portfolio has resulted in varied returns for both funds across cycles.

Canara Robeco Infrastructure, for instance, has done well in 2015, thanks to select stocks in the energy and construction space. Stocks, such as HPCL and IOC, in which the fund upped its holdings, performed well in 2015. Increasing its holdings in Ashoka Buildcon and Sadbhav Engineering, and buying into stocks, such as Praj Industries and Transport Corporation of India, also paid off.

Its decision to exit private bank stocks that delivered flat to negative returns in 2015 played out well. In contrast, for Franklin Build India, the bet on private and PSU bank stocks lost out.

Performance

Canara Robeco Infrastructure performed well in the market rallies of 2009 and recently in 2014 as well. It also capped its losses to 17 per cent in the 2011 volatile market, when its benchmark lost 22 per cent and Nifty Infrastructure index lost 34 per cent. But it under performed in the 2012 rally and the sideways market of 2013. The fund’s rolling returns since 2009 however, provide comfort. On a one-year rolling basis, the fund managed to beat its benchmark about 60 per cent of the time.

But here you should note that the fund invests primarily in infra-related stocks and the benchmark S&P BSE 100 is not a like-to-like comparison. Against the Nifty Infrastructure Index, the fund has outperformed more than 85 per cent of the time. Also, if you want to play the infrastructure theme by the book, the fund’s stock picking in the past presents a good case for investing in it.

The fund has invested about 25-35 per cent of its equity in mid- and small-caps. But it has managed to cap its losses by increasing its exposure to large-caps and moving some portion of its assets into cash.

As of November, 13 per cent of assets is cash while 87 per cent is in equity. Of the equity portion, about 60 per cent is in large-caps (over ₹10,000 crore market capitalisation). A higher cash component will help cap the downside in a volatile market and also provide ample headroom to invest as and when opportunities open in the infrastructure space.

The fund’s top holdings currently include Power Grid, UltraTech Cement, Sadbhav Engineering, Container Corp and Ashoka Buildcon, a mix of sound picks in the large- and mid-cap spaces.