Why Axis Mutual Fund Schemes did so well in 2019

axis mutual fund

Axis Mutual Fund Schemes had a stellar 2019 if returns and AUM growth are the criteria for that.

Let’s look at the returns for the past 1 year for some of their schemes

Axis Bluechip

Axis Multi Cap

Axis Mid Cap

All the above equity mutual funds have beaten the category returns quite convincingly. 

Axis Bluechip
Axis Bluechip Fund despite being a Large Cap Mutual Fund takes a focused approach to its portfolio (not to be confused with Axis Focused 25 Fund).

It limits its portfolio to anyway between 25-40 stocks unlike other mutual fund schemes in the same category. A Large Cap Fund after SEBI’s re-categorization needs to invest a minimum of 80% of its portfolio into large cap stocks. This would mean it has limited choices since only the top 100 companies by market cap make that list which is significantly lower than mid and small cap stocks.

Axis Bluechip Fund has a very strict filtering process with a bias for clean management and strong earnings potential.

The factsheet of December 2019 for Axis Bluechip Fund has 38.18% of its portfolio into the following five stocks:

  1.      ICICI Bank Limited
  2.      Kotak Mahindra Bank
  3.      Bajaj Finance Limited
  4.      HDFC Bank
  5.     Reliance Industries Limited 

All of the above companies are leading and if not,at least in the top space when it comes to their category, this was the strategy not just for Axis Bluechip Fund but for most equity schemes of Axis mutual fund in 2019

The issue with such a strategy is that it is heavily dependent on the quarterly performance of the stocks and since the fund limits the number of stocks it actually picks (the limitation of number of stocks is a mutual fund company specific call and not SEBI mandated) the margin for error is extremely minimal.

Mutual Fund Portfolio Diversification

Axis mutual fund
Top 3 sectors of Axis Bluechip Fund as on 31 Dec 19

Axis mutual fund
Top 3 sectors of Axis Focused 25 Fund as on 31 Dec 19

As you can see, in both the Axis Bluechip Fund and Axis Focused 25 Fund, the top 3 sectors are the exact same whereas the distribution in the said 3 sectors are also very identical.

axis mutual fund

axis mutual fund

Except for Avenue Supermarts in Axis Multi Cap Fund, the top 4 holdings in both Axis Bluechip Fund and Axis Multi Cap Fund are same and in the exact order. In fact even their distribution is very identical.

axis mutual fund

axis mutual fund

It says the Fund Manager for both, Axis Bluechip Fund as well as Axis Multi Cap Fund is Mr. Shreyash Devalkar.

Axis Bluechip 18.57%
Axis Multi Cap 17.19%

When you have  the exact same top 3 sectors held, just a difference of 1 stock in the top five holdings with the remaining having identical exposure and at the helm the same manager for both schemes, should you be surprised with a difference of only 0.15% between schemes from varying categories?

  1. A Multi Cap Fund has no fixed mandate to follow as such, so the Fund Manager is not bound and has a free hand. That is not the case with a Large Cap Fund though, which by mandate needs to invest a minimum of 80% into Large Cap stocks.
  2. So in the above example you need to understand that the strategy used for the Large cap fund has been implemented in the Multi Cap fund and not vice versa. This is because as explained above, a Multi Cap fund has no fixed mandate as such but a Large Cap fund does.
  3. Now on paper and in isolation this looks like an excellent idea but in fact this is a very double edged sword. The only reason it looks good is because it has come out good but that cannot always be the case.
  4. Let’s say you had invested in both the schemes and the strategy had not worked, you would have been left wondering why both a Large Cap Fund and a Multi Cap Fund have failed simultaneously even when both are from different categories.

This is exactly why we have always been strong advocates of ‘’ Reasoned Diversification’’.

Click Here to know how to diversify your mutual fund portfolio

There is diversifying your mutual fund portfolio for the sake of it and then there is Reasoned Diversification, where you actually have strong reasons to diversify.

     a) Fund House strategy
     b) Fund Manager strategy
     c)  Scheme strategy

Every mutual fund company these days uses the same old adage of ‘’bottom up stock pickings’’ to ‘’companies with strong management” but you also need to keep in mind the Fund Manager as well as the mutual fund scheme.

In the case of Axis above we have seen the Fund Manager for both the equity schemes are same but would the similarity in returns be the same in case of a different manager is only speculative.

For a moment let’s assume it would be but can you apply the same strategy to say a Large cap and a Small cap?
A Big No !

This is because a Small Cap Fund by mandate needs a minimum of 65% into Small Cap stocks whereas a Large Cap Fund by mandate needs a minimum of 65% into Large Cap stocks.

The reason why it worked with a Large Cap and a Multi Cap is because a Multi Cap has no fixed mandate and it is completely at the discretion of the Fund Manager and when the Fund Manager is the same, it becomes all the more uniform.

Click Here to read our review of Axis Long Term Equity Fund

Cash holdings in a mutual fund portfolio

  1. You must have heard concepts of Equity and Debt in a mutual fund portfolio but the concept of Cash Holdings is still very rarely discussed.
  2. Cash or cash equivalents are used for daily transactions and redemptions. Most Mutual Funds keep the same at around 5% of the portfolio on an average.
  3. Generally speaking when a Fund Manager holds more than 10% of the entire portfolio in cash, it implies he is bearish about the market and the current valuations do not seem attractive.
  4. This is what Axis mutual fund Schemes did in 2019, where they could not find reasonable positions to enter.

This method has often found itself fierce criticism for the following reasons:

  1.     It entails being absolutely certain of market conditions, it simple terms, timing the market. No one can get it right every time so the element of risk is high.
  2.     It puts undue risk on the Fund Manager and things get worse if it is not an experienced one. Let’s say he is sitting on high levels of cash but has got his market predictions horribly wrong, he may now panic and take picks he would not necessarily like to.
  3.     There is an ethical angle to this as well, asset allocation should be best left to investor and his mutual fund advisor. If the Fund Manager is sitting on high levels of cash and not taking stock calls then that defeats the very purpose to pursue equity investing.
  4.     This puts the Fund Manager under severe stress, this becomes all the more worse when he is managing more than one fund spread across varying categories. 

Yes, in an actively managed fund the role of a Fund Manager is indeed vital but this method makes it seem like it is the only thing it is depended which goes against one of the very basic fundamentals of investing. ’Never put all your eggs in one basket’

Index funds in an actively managed scheme?
For the Axis Bluechip Fund ending 31st December 2019, it had 2.03% of its portfolio in the Nifty 50 Index. Yes an actively managed fund was investing in an index, as previously mentioned with the SEBI regulations, the fund manager was struggling to find meaningful selection from the large cap space.

Are Axis Mutual Fund Schemes the best mutual fund schemes?
No and neither are HDFC, Mirae, Aditya Birla, DSP, etc.

There are no best mutual fund schemes, only well suited mutual fund schemes.

The following points should help you get a better understanding.

  1. Equity mutual fund schemes do not have linear returns. Meaning returns are not constant and are bound to be up and down. Now if you are looking for the best performing mutual fund schemes, you will end up having an entirely new mutual fund portfolio each year.
  2. This constant chopping and changing will result in you not being able to completely avail the benefits of compounding with equity investment. If you are not patient and consistent with your mutual fund portfolio, then you need to review whether you really should be even investing in Mutual Funds in the first place.
  3. There is so much noise around investment these days but not enough sense. We are drowning in information but struggling for knowledge, when you consider the opinion of every other person with regards to your mutual fund portfolio,you are bound to periods of anxiety and self- doubt. Remember, no one is rushing to post their portfolio failures on social media.
  4. In case you do want to shift from one scheme to another then you need strong reasons to do. 

Wanting high returns is not a reason, it is a desire and the markets reward you with you deserve and not what you desire.

Sit down with a licenced mutual fund advisor and make a plan, stick to that plan unless you have strong reasons to divert from them.

Some of them could include:
  1. Change in Fund Manager
  2. Change in Fund Strategy (Example Multi Cap becomes Large Cap)
  3. You have surplus cash but the scheme neither accepts Lump sum investments nor STP.

There are no best mutual funds, they never were and they never will be. The performance of Axis Mutual Fund schemes is a prime example of how every differing year there will be certain schemes that outperform other equity schemes.

And yet being cautioned over not chasing returns, you will always find na├»ve investors attempting that very futile exercise. 

The article was first published on 29/04/19 and has been duly updated with latest facts and figures as and where deemed necessary.

For portfolio enquiriesemail us with your doubts at info@themutualfundguide.com

Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
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