Axis Focused 25 Fund: Investing in High Conviction Ideas
Jan 02, 2020

Author: Divya Grover

Axis Focused 25 Fund: Investing in High Conviction Ideas
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Equity funds have gained popularity in the recent years as it holds potential to generate higher returns over long term. This makes equity funds an effective tool for long term financial goals such as retirement, children's future, etc.

While most equity funds hold between 50-100 stocks to achieve optimal diversification, the benefits of diversification can also be achieved by focusing investment in a high conviction portfolio of 20-30 stocks.

Axis Focused 25 Fund (AF25F) is one such focused fund that seeks to generate capital appreciation by investing in a concentrated portfolio of up to 25 companies.

Launched in June 2012, the fund's asset size of Rs 8,891 crore is among the largest in the focused fund category. The scheme is managed by Mr Jinesh Gopani, Head of Equities at Axis AMC, since June 2016.

Graph 1: Growth of Rs 10,000 if invested in Axis Focused 25 Fund 5 years ago

Axis Focused 25 Fund has showcased extra-ordinary performance in the last five years. If you had invested Rs 10,000 in AF25F five years back on December 31, 2014 it would have appreciated at a compounded annualised growth rate of 14.2% to Rs 19,381 (as calculated on December 31, 2019). In comparison, simultaneous investment of Rs 10,000 in its benchmark Nifty 50 - TRI would now be worth Rs 15,661 (a CAGR of 9.4%). The fund has generated remarkable lead over the benchmark in the last five years, rewarding investors with higher returns.

Graph 1: Growth of Rs 10,000 if invested in Axis Focused 25 Fund 5 years ago
 
Data as on December 31, 2019
(Source: ACE MF)
 
Graph 2: Axis Focused 25 Fund's year-on-year performance
 
Graph 2: Canara Robeco Emerging Equities Fund's year-on-year performance
 
*YTD as on December 24, 2019
(Source: ACE MF)

Launched in June 2012, AF25F does not have a long term track record. However, it has managed to catch investor's attention in this short time span due to impressive returns across market cycles. The year-on-year performance comparison of the fund relative to its benchmark Nifty 50 - TRI shows that the fund outperformed the index in most of the calendar years. Majority of the outperformance was generated during the bull phases. While the fund delivered returns nearly in line with the benchmark in CY 2016, it trailed the index in CY 2013 and CY 2018. In CY 2018 the fund lagged the benchmark as the markets turned volatile. However, it managed to significantly improve its performance in CY 2019 and even outpaced the benchmark.

Table  Axis Focused 25 Fund's performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
Axis Focused 25 Fund 8,891 5.54 11.97 17.10 16.07 14.07 0.25
JM Core 11 Fund 56 5.86 7.44 15.92 15.16 16.19 0.17
Sundaram Select Focus 1,060 7.99 11.48 14.95 11.27 11.38 0.27
SBI Focused Equity Fund 6,526 7.08 12.21 14.51 16.14 13.29 0.21
IIFL Focused Equity Fund 476 12.41 9.31 14.21 12.58 15.26 0.19
IDFC Focused Equity Fund 1,515 -5.16 4.61 13.21 10.25 14.93 0.16
Motilal Oswal Focused 25 Fund 1,177 4.77 6.71 12.67 13.65 13.21 0.17
Franklin India Focused Equity Fund 8,994 6.16 6.54 12.42 15.64 15.29 0.12
Principal Focused Multicap Fund 359 4.70 7.23 11.78 11.22 12.42 0.16
Aditya Birla SL Focused Equity Fund 4,407 4.62 6.14 11.66 12.30 11.95 0.15
Nippon India Focused Equity Fund 4,281 -0.67 3.31 10.83 15.00 16.00 0.07
DSP Focus Fund 2,035 4.62 5.53 10.37 12.61 14.36 0.13
ICICI Pru Focused Equity Fund 667 0.55 5.04 9.60 9.55 11.34 0.02
Quant Focused Fund 4 -1.42 4.38 9.39 15.29 12.79 0.06
HDFC Focused 30 Fund 512 -1.69 1.40 9.26 10.05 15.20 0.04
NIFTY 50 - TRI 8.03 10.79 13.76 10.68 11.69 0.22
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr arecompounded annualised.
Data as on December 31, 2019
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

AF25F outperformed the benchmark and category average across rolling period, barring 1-year rolling period, where it lagged the index. Over the longer time horizon of 3-year and 5-year rolling returns, the outperformance margin has been in the range of 3-5 percentage points.

The fund stands among the top performers on 2-year to 5-year rolling period. Some of the other top performers during the period are JM Core 11 Fund, Sundaram Select Focus, SBI Focused Equity Fund and IIFL Focused Equity Fund.

In terms of risk-return profile, the fund's volatility has been higher than the benchmark and category average. Regardless, its risk-adjusted return is among the best in the category.

Investment strategy of Axis Focused 25 Fund

Categorised as Focused fund, AF25F is mandated to invest minimum 65% of its assets in equity and equity related instruments of up to 30 companies. Accordingly, the fund invests in a concentrated portfolio of up to 25 companies while maintaining high active allocation relative to the benchmark. The stocks are selected following a bottom-up stock selection approach to bet on high conviction stocks.

The fund analyses the appreciation potential of individual stocks from a fundamental prospective employing a `fair value' based research process. It aims to carefully select stocks to include companies having a robust business models and enjoying sustainable competitive advantages as compared to their competitors, and hold them for long term.

The fund has the flexibility to invest up to 35% of its assets in debt and money market instruments.

Graph 3: Portfolio allocation and market capitalisation trend in Axis Focused 25 Fund

Investment strategy of Axis Focused 25 Fund
Holding (in %) as on November 30, 2019
(Source: ACE MF)

AF25F has the flexibility to invest across market capitalisation, though it maintains a large cap bias. The fund invests around 70-80% of its assets in equities of large cap companies. It also has significant exposure of 15-20% in mid caps. In the last one year, though the fund initially had marginal exposure of 1-2% in small caps, it has completed avoided investing in the segment in the last few months. The fund holds up to 10% of its assets in cash and equivalents.



 

Graph 4: Top portfolio holdings in Axis Focused 25 Fund

Graph 4: Top portfolio holdings in Axis Focused 25 Fund Graph 4: Top portfolio holdings in Axis Focused 25 Fund-1
Holding (in %) as on November 30, 2019
(Source: ACE MF)

AF25F invests in a portfolio of 25 high conviction stocks while remaining diversified. The top 10 stocks constitute 63.7% of its holding which has Bajaj Finance at the top of the list having an allocation of 8.5%. Bajaj Finserv, Reliance Industries and Kotak Mahindra Bank closely follow with an allocation in the range of 7-8%. Rest of the stocks in the top 10 holding have allocation in the range of 4-7%.

The fund is heavily exposed to banking and finance sector which together forms 43.5% of the sector wise holding. Infotech is the other major sector where the fund has invested 11.8% of its assets, followed by Engineering and Petroleum Products with allocation of around 7% each. The other prominent sectors in the portfolio are Retail, Consumption, Chemicals and Auto.

Top contributors

Among the stocks in the portfolio, Bajaj finance contributed the most to the fund's gains in the last one year with a weighted return of 4.4%. The fund also gained from its holdings in Bajaj Finserv, Kotak Mahindra Bank, HDFC Bank, Info Edge (India), Avenue Supermarts and HDFC.

On the other hand stocks like Cummins India, Maruti Suzuki India and Wabco India eroded some of its gains.

Suitability of Axis Focused 25 Fund

AF25F has rewarded investors well in the past with superior risk-adjusted returns and has the potential to continue its winning performance in the future as well. While focused funds take utmost care to focus on high conviction ideas having high growth potential, if the fund manager's bets do not pay off as expected, investors may incur heavy losses due to high concentration of the portfolio. Therefore, Focused funds are a high-risk high-return investment. This makes AF25F suitable for aggressive investors with a long investment horizon.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

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Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Rahul Goel;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

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  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

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Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400 021.

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013



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