Mutual funds: Should you invest in Axis Bluechip Fund?

Axis Bluechip Fund was an investor’s favourite till quite some time back. The fund bagged the second position among active large cap funds in 2017. Later, in 2018 and 2019, the fund garnered the top spot in the category. 

Its streak continued in 2020 as well when the fund became the second-best performing active large cap fund. From 2021, its performance dwindled, and the fund has failed to attract investors due to its lacklustre performance.

“The fund follows a quality centric investing style wherein stock selection and allocation are based on fundamental aspects of a business and its ability to grow sustainably over the medium to long term. By nature, these companies offer investors a relatively higher margin of safety due to the relative predictability of earnings and the proven management and business track records. In effect if a company falls less, the resulting growth will also be lower in absolute terms ergo lower overall volatility in asset prices,” said Shreyash Devalkar, Senior Equity Fund Manager, Axis Mutual Fund.

“Another aspect to consider is valuations. Valuation of growth oriented companies’ factors interest rates as a key determinant given the forward looking interpretation of the company’s business. As interest rates rise, valuations adjust downwards factoring the present value of future earnings prospects. In totality, the last year has been a culmination of both aspects resulting in sub-optimal performance,” the fund manager added.

Let us check the past performance of the fund.

Here, we are considering the returns of the direct plan of the fund.

Data from Value Research, as on 18-May-2023

Here, we can see that the fund is lagging behind its peers in a one-year and three-year period. However, if we look at its 7-year and 10-year returns, the fund has been able to restrict the fall in its ranking amongst its peers.

Rolling Returns

Rolling returns analyses the returns over consecutive periods of a specific length, such as one year. Here, we have taken the rolling returns for one year from the inception of the direct plan in 2013. Rolling returns helps us to observe how the fund has performed over different one-year intervals from 2013. This shows the fund’s consistency and long-term performance.

Data from AdvisorKhoj, as on 18-May-2023

So, if we look at the rolling returns data, we can see that the fund had an average return of 17.06% which is higher than the average returns of the category at 12.16% and the benchmark at 16.15%.

We can also see that the minimum return of the fund was -15.03%, while the minimum average of the category was -26.89%. This depicts that the fund was able to restrict its losses.

Investment Process

The fund is one of the largest blue chip funds with assets under management worth ₹33,474 crores as of 30-Apr-2023.

Shreyash Devalkar has been managing the fund since November 2016. Vinayak Jayanath has managed the international portion of the fund since January 2023.

The fund has a three-step investment process:

1. As a large cap fund, it invests 80-100% of its portfolio in large cap companies and up to 20% in other companies.
2. The fund takes steps to reduce risk by investing in liquid stocks, i.e., easy to buy and sell. It also aims to have less fluctuation in its value compared to its benchmark.
3. The fund focuses on owning high-quality businesses by following a bottom-up stock-picking strategy that might do well in the future. Additionally, the fund manager makes tactical decisions to invest in certain stocks that may perform well during specific economic cycles. The tactical call and its core strategy allow the fund to focus on long-term stability and potential short-term gains based on market conditions.

The fund has a strong conviction in its investment process and doesn’t compromise on the quality of the portfolio.

This can be seen from the higher average Return on Equity (RoE) of the underlying equity instruments of the fund at 14.4%* compared to the benchmark’s average of 12.8%. RoE measures how well a business uses investors’ money to generate profits. A company with higher RoE means the company is better at using investors’ money to make profits than a company with a lower RoE.

Portfolio

Here’s a snapshot of the fund’s allocation to its top five stocks and top five sectors:

Top Five Sectors

The fund has increased its exposure to stocks such as HDFC Bank (2.73%), Larsen & Toubro Limited (2.42%), Mahindra & Mahindra Limited (2.36%), Hindustan Unilever Limited (1.75%) and Maruti Suzuki India Limited(1.56%) over the last year.

On the other hand, the fund has decreased its exposure in stocks such as Infosys Limited (-2.84%), Divis Laboratories Limited(-2.72%), Gland Pharma (-1.57%), Bajaj Finance Limited (-1.47%) and Tata Consultancy Services Limited (-1.47%) in the same time frame.

What should you do?

Axis Bluechip Fund has remained strict in its investment mandate. If you have already invested in this fund for the long term and believe in the fund manager’s expertise, you might stay invested in the fund.

Shreyash Devalkar said, “All funds have ups and downs, which is part and parcel of fund management. The yardstick for fund performance is hence always evaluated on longer term track records, which continue to remain intact. In terms of the cyclicality of fund performance we have already begun to see green shoots in our style of investing as is reflective in near term performance.”

However, it would be best to consult your financial advisor before taking any investment decision.

Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.