Axis Bluechip Fund: Delivering Robust Long Term Returns

May 6, 2022 Mutual Fund

The RBI’s off-cycle move to hike interest rates came as a surprise to investors in the equity market. The S&P BSE Sensex declined by around 1,307 points in a day on May 04, 2022, as RBI raised the repo rate by 40 basis points to tame inflation. It is likely that RBI will announce further rate hikes in the current financial year.

Large-sized companies are better poised to handle a higher interest rate environment compared to mid and small-sized counterparts. Therefore, Large-cap Funds can be expected to perform well in the near future.

Axis Bluechip Fund is a Large-cap Fund that has outscored its peers and the benchmark over the long term and rewarded investors with superior risk-adjusted returns.

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

Past performance is not an indicator of future returns
Data as on May 02, 2022
(Source: ACE MF)  

With a corpus of Rs 35,702 crore, Axis Bluechip Fund is the largest scheme in the Large-cap Fund category. The fund has gained popularity among investors with its extraordinary performance registered over the last few years. Axis Bluechip Fund selects stocks based on their ability to grow earnings on a sustainable basis from a medium-term perspective. In the market crash of 2020, wherein various Large-cap Funds found it difficult to keep pace with the indices, Axis Bluechip Fund managed to outperform the benchmark S&P BSE 100 – TRI and the category peers by a significant margin. However, the fund couldn’t participate the recent bull phase that was largely driven by momentum stocks. Nonetheless, in the last 5 years, Axis Bluechip Fund has generated returns at a CAGR of about 16% as compared to the 14% CAGR delivered by the benchmark S&P BSE 100 – TRI index, thus rewarding investors with an alpha of about 2 percentage points.

Table: Axis Bluechip Fund’s performance vis-á-vis category peers

Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on May 02, 2022
(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.

In terms of performance, Axis Bluechip Fund has done exceedingly well over the long term. The fund focuses on investing in high-quality stocks in the large-cap segment, which has helped it to perform exceedingly well in the last few years. Even though Axis Bluechip Fund has significantly trailed the benchmark S&P BSE 100 – TRI and many of its peers in the last 1-year and 2-year period, over the longer time period of 5-years and 7-years, the fund stands among the category toppers and has outpaced the benchmark.

While managing Axis Bluechip Fund, the fund manager aims to outperform the benchmark while undertaking risk that is lower than the benchmark. Accordingly, the volatility registered by the fund is the lowest in the large-cap category. Moreover, the Sharpe Ratio of the fund is currently among the best in the category and significantly ahead of its benchmark.

Investment strategy of Axis Bluechip Fund

Categorised as Large-cap Fund, Axis Bluechip Fund is mandated to hold at least 80% allocation in large-caps, while the remaining can be in mid and small-caps. However, the fund maintains almost zero exposure to mid and small-caps. Axis Bluechip Fund is a growth-oriented large-cap biased fund that primarily follows the bottom-up approach to stock picking, along with some tactical and structural calls to benefit from price corrections.

Belonging to a process-driven fund house, Axis Bluechip Fund focuses on investing in high-quality stocks in the large-cap segment having the potential to grow cash flows over the medium to long term. Its portfolio is built utilising the bottom-up approach, focusing on the appreciation potential of individual stocks from a fundamental perspective. It employs a ‘Fair value-based’ research process to analyse the growth potential of stocks. The stocks are carefully selected to include companies having robust business models and enjoying sustainable competitive advantage as compared to their competitors.

Unlike its peers that hold 45-50 stocks, Axis Bluechip Fund holds a compact portfolio of just around 30-35 stocks. Rather than adding too many names, the fund management believes in staying with known quality names and look for corporate governance, strong management, scalable, and secular business model where they can invest for at least 3 to 5 years.

Graph 2: Top portfolio holdings in Axis Bluechip Fund

Holding in (%) as of March 31, 2022
(Source: ACE MF)  

As of March 31, 2022, Axis Bluechip Fund held a compact portfolio of 39 stocks. Names like Infosys, Bajaj Finance, ICICI Bank, HDFC Bank, and TCS currently figure among the top holdings in the fund’s portfolio, with an allocation in the range of 7% to 10% each. Avenue Supermarts, Kotak Mahindra Bank, Reliance Industries, Divi’s Laboratories, Bharti Airtel, etc., stood among the other top holdings in the fund’s portfolio. It also invests some portion in Derivatives (Futures) for hedging purposes.

In the last one year, Axis Bluechip Fund benefitted from its holdings in Infosys, Bajaj Finance, Avenue Supermarts, ICICI Bank, Reliance Industries,TCS, among others, while it lost some value in Motherson Sumi Systems, HDFC Ltd., HDFC Bank, Ultratech Cement, etc.

Though Axis Bluechip Fund’s portfolio is skewed towards cyclicals, it is fairly diversified towards defensives. Around 37.4% of the fund’s portfolio is exposed to Banking and Finance stocks, followed by Infotech, Retail, Pharma, and Consumption adding another 39% to its portfolio allocation. The remaining part of the portfolio is diversified across Petroleum, Cement, Telecom, Engineering, among others.

Suitability

Axis Bluechip Fund’s focus on quality stocks enables it to stand strong during depressed market conditions, as witnessed during the market crash of 2020. Even though the fund has remarkably trailed the benchmark and the category average in the current bull phase, it has the potential to bounce back and reward investors with superior gains.

As the fund remains benchmark agnostic, it avoids benchmarking the index. It focuses on high conviction stock ideas, where the investments are made typically at the conviction of the fund manager, irrespective of their weightage in the index. Certainly, the performance of the fund may deviate significantly from the benchmark.

Axis Bluechip Fund is suitable for investors looking for capital appreciation over a longer time period of 5 years or more.

This article first appeared on PersonalFN here