Mutual Funds

Axis Focused 25: The focus pays off

Anand Kalyanaraman | Updated on December 15, 2018 Published on December 15, 2018

The scheme has managed a positive return over the past year, unlike most of its multi-cap peers

Mysterious are the ways of the market. In a week that saw a shock change of guard at the RBI and the defeat of the ruling BJP in key State elections, the market rallied smartly, instead of slipping sharply, as many had predicted.

As the country heads into the Lok Sabha elections next year, the yo-yoing in the market could continue and investors should brace themselves for volatility.

In this background, multi-cap funds with the flexibility to adjust stock allocations across market capitalisations, depending on changing dynamics, could be a good choice for investors seeking to play it by the ear.

Performance

Axis Focused 25 is a good choice in this category, having held its own in the volatile market this year. The fund has managed a positive return of about 3 per cent over the past year, in contrast to the dips registered by most of its peers in the multi-cap category. Over three- and five-year periods, too, Axis Focused 25, with annualised return of 16-17 per cent, is in the top quartiles in its category. While the fund has lagged its benchmark, Nifty 50 Total Return Index, over the past year, it has outperformed the benchmark by 3-4 percentage points over longer periods.

The fund has up to 25 stocks (23 as of November 2018), in line with SEBI’s mandate of a maximum 30 stocks in focussed funds. While the fund’s corpus has remained dominated by large-cap stocks, it tweaks its portfolio composition, based on market movements.

For instance, in July 2018, large-caps accounted for about 71 per cent of the corpus, smaller stocks about 18 per cent, and cash/debt holdings about 11 per cent. But with the market volatility since then, the fund has reduced smaller stock exposure to about 11 per cent as of November 2018, while increasing holdings in cash/debt to about 14 per cent and large-caps to 75 per cent.

Strategy

Flexibility in asset churn and a bottom-up, growth-investing approach in a compact portfolio of high-conviction stocks have held the fund in good stead.

So has the fund’s high active allocation that sees most of its stocks from outside the benchmark.

While the relatively small portfolio of stocks in Axis Focused 25 compared with many multi-cap fund peers increases concentration risk, this is mitigated by the high-quality picks.

For instance, the fund’s largest exposures, as of November 2018, have been in large-cap blue-chips such as HDFC Bank, TCS, Kotak Mahindra Bank and Bajaj Finance (7-9 per cent each).

Smaller stocks in the portfolio such as Supreme Industries, Endurance Technologies and V-Guard are also quality names.

Stocks such as Bajaj Finance and Eicher Motors have been multi-baggers over the long run. Over the past year, the fund has exited the cement and textile sectors, while adding up on two-wheelers and paints.

The fund’s largest exposure is to the financial services sector, followed by automobiles and software companies.

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