Investing in large-caps have become quite challenging over the years, especially when it comes to beating Nifty or Sensex. This has only become tougher with the funds being benchmarked now, on the total returns index that includes the dividends as well. Moreover, the regulatory rules have made it somewhat tough for the large-cap funds to include growth boosters as mid-cap and small-cap funds in the semblance of the large-cap label. When a one year period completed on 6th November 2019, about 92% of all the large-cap funds had failed to match Sensex Total Return Index (TRI )’s approximately 16.99% return. In the period of the last three years, the Sensex TRI was about 15.42%, which was highly challenging to overcome for about 95% of the large-cap funds. Indeed, the alpha generation that is yielding excess returns over a basketful of stocks such as the before-mentioned Sensex TRI has become considerably challenging.
However, there are always some mutual funds that question the prevailing notions. The notion that the large-cap funds find it unlikely to overcome the benchmark indices goes out of the window when you look at the exceptional Axis Bluechip Fund growth and performance. Earlier known as the Axis Equity, this fund is the chart-topper whenever it comes to handling the large-cap funds. In the previous year, while the Sensex TRI has given about a 16.99% return, the Axis Bluechip Fund has earned about 23.84%, implying 6.85% higher than the benchmark. In the previous three years, the Axis Bluechip Fund growth has let to the generation of 17% annualized increase in comparison to the 15.42% increase in the Sensex TRI.
Major portfolio holdings in Axis Bluechip Fund. Image Source: equitymaster.com
Secret ingredients or a magical seasoning or something else, let’s find out now! This article gives significant insights that flavored up the chart-topping Axis Bluechip fund growth over the years.
1. The portfolio approach
Axis Bluechip Fund growth has been majorly contributed due to its concentrated portfolio approach. The fund has about two dozen stocks in its portfolio. This approach is quite unconventional from what several other renowned large-cap funds have done.Let’s now discuss how concentration helps. A concentrated fund has a lesser number of bets. Consequently, the weight of a stock is higher. This implies in case the concentrated bets work, the impact of each bet will be more pronounced on the portfolio than a fund that has a more significant number of stocks.
The flipside of running a concentrated fund portfolio could be that when the bets fail or don’t work, the consequence of such mis-hits is also proclaimed. That is the reason why fund managers favor running extensive portfolios to diversify. However, do note that maintaining a large number of stocks can ricochet if the stock market is running on a few stocks.
2. Shunning worst-impacted stocks & sectors
Axis Bluechip Fund growth is also because it has avoided the worst-hit stocks and sectors so far. In the past year, the metal, auto, healthcare, telecom, necessary materials, and infrastructure sectors have not performed well. Also, in the past three years, telecom, automobile, healthcare, metal, and PSU sectors have not fared well. The Axis Bluechip Fundgrowth has personified and outpaced with the old market maxim- lose less to win more, in several ways. To illustrate the reason, here’s an example. As observed on 30th September 2019, the Axis Bluechip Fund portfolio has had only one auto stock- Mahindra & Mahindra, and this stock has lower than about 0.5% sway in the overall portfolio. You can compare this to other large-cap funds that have about 3-7% of their portfolio in auto stocks like Motherson Sumi, which was down by 22.9% in 1 year, TVS Motor, which was down by 16.2%.
3. Quality over Quantity in stock selection
Axis Bluechip Fund selection in stocks has been great. This has contributed to Axis Bluechip Fund growth over the years. The stock market currently is proffering inclination to quality and increase in place of valuation. Axis Bluechip Fund appears to have anticipated this trend and formulated positions in such stocks for which the market would readily pay a premium. Consequently, the Axis Bluechip Fund’s portfolio’s price to earnings(P/E) valuation is one of the highest at around 36 times. In contrast, the stocks acquired by the competing large-cap funds are trading at more moderate valuations. However, their performance has not been able to outpace the Axis’ scheme.
On comparing the statistics of the P/E valuation of the large-cap funds, you can draw a few conclusions for Axis Bluechip fund growth. First, Axis Bluechip Fund holds stocks that sell at higher costs. Second, the portfolios of the other competing large-cap funds have got stocks that are de-rated and, thus, trade at lower valuations. Both of these conclusions seem credible for Axis Bluechip Fund. For instance, Axis Bluechip Fund has stocks such as Avenue Supermart, which trade at above 100 times trailing earnings. Then there are chemical stocks such as Asian Paints, Astral Poly, and Pidilite that trade at about 60-70 times P/E. Axis Bluechip Fund’s stocks such as Asian Paints, Bajaj Finance, Bajaj Finserv, and Nestle India have achieved cumbersome returns in the afore-mentioned periods.