Axis Focused 25 Fund Review: Outperformance at extra risk!

Published: October 6, 2019 at 10:54 am

This week, let us consider, Axis Focused 25 Fund, study its portfolio history and compare performance with its benchmark and peers. In case you missed out on yesterday review, do check out Franklin India Ultra Short Bond Fund Review: When and how to invest. Also, the October edition of my handpicked mutual funds is now available.

Axis Focused 25 Fund is an open-ended focused fund launched in June 2012 with an objective to generate long term capital appreciation by investing in a concentrated portfolio of equity & equity related instruments of up to 25 companies.

Note, Value Research classifies this fund as “multi-cap”. This is not the official category. The fund is a focused fund as per SEBI rules. Such funds must hold 65% of direct Indian equity and can invest in up to 30 stocks. Axis has a separate multicap fund too.  Do not use VR rating to classify funds! There are currently 21 focused funds. See the list below.

Axis Focused 25 Fund: Basic Details

Let us begin the review with some basics details about the scheme. According to AMFI, the Average Assets under Management (AAUM) for the quarter of July – September 2019 (Rs in Lakhs)

Axis Focused 25 Fund – Direct Plan – Dividend Option4141.8
Axis Focused 25 Fund – Direct Plan – Growth Option88664.57
Axis Focused 25 Fund – Dividend Option34883.18
Axis Focused 25 Fund – Growth Option660556.23
Expense Ratio2.03 (Reg) and 0.74 (Dir)
BenchmarkNIFTY 50 – TRI (Benchmark)
Additional BenchmarkS&P BSE 200 – TRI (Benchmark)

 

Investment PatternMinimumMaximum
Debt & MMI035
Equity and Equity Related Instruments (of not exceeding 25 companies)65100
Units issued by REITs & InvITs010
Fund ManagerTenure
Pankaj MurarkaJuly 2012 to July 2013
Sudhanshu AsthanaAug 2013 to July 2016
Jinesh GopaniFrom June 2016

Investment style

The scheme uses a “bottom-up” approach to select stocks with robust business
models and enjoying sustainable competitive advantages. Since the stock weight will be higher than in the index, the fund will ensure good diversification and manage risk.

The top 200 stocks by market capitalization (100 large cap and 100 mid cap) is the typical stock universe for this fund. However, it can have some small cap exposure.  According to the scheme presentation, it will typically avoid PSU stocks and focus on high ROE and ROCE.

A good amount of stocks in the fund will be outside the benchmark (Nifty 50): 36% (16 stocks) as on June 2019. Therefore it is best to assume the fund will typically be more volatile than the benchmark.

Historical Equity Allocation

The historical equity allocation of the fund is shown below. It has remained “fully invested” into equity most of the time. There is no indication that the fund makes tactical asset allocation calls.

Equity Allocation History of Axis Focused 25 FundMarket Cap History

The large cap allocation of the fund has increased over time perhaps due to a falling market rather than a fund size effect.

Market Cap history of Axis Focused 25 FundSector Allocation History

The top ten sectors the fund has invested in is shown below. I do not track stock sectors so cannot comment on this. If you can spot a pattern, please share in the comment section.

Sector Allocation History of Axis Focused 25 Fund

Axis Focused 25 Fund Performance vs Peers

This is a snapshot of the latest trailing returns of all focused funds, category peers and Nifty 50, 100. The fund has a reasonable trailing track record falling in the top half of the category. Note that many of these funds may have had a different history prior to the SEBI categorization rules.

Axis Focused 25 Fund Performance vs PeersRolling Returns and Rolling Risk

The fund does not have much of history so one can only study returns and risk over three years. The performance over five years is also similar and will be shown in the video version of the review. The fund has managed to stay above Nifty 50 over every possible three-year period.

Axis Focused 25 Fund Three Year Rolling ReturnsThe only problem is that it has taken more risk in doing so. The rolling risk line of the fund is above the index.

Axis Focused 25 Fund Three Year Rolling Risk or standard deviationIf the fund is more volatile than the index the return outperformance expectation will be higher. I am afraid those expectations are likely to be met during bull markets. A focused fund is most vulnerable during bear markets.

AUM Growth of Axis Focused 25 Fund

The fund has a short, but good track record. However, both high AUM and sudden spike in AUM can be a problem for a focused especially one associated with a bank where they can push it hard.

Notice how the AUM growth rate spikes whenever the market moves up! This is sad.  That is why I had posted this video a few days ago

At 7.800 crores, there is still some space left for this fund. It can still remain focused by expanding up to 30 stocks.

Expense Ratio History

Notice AXIS increased the expense ratio when they see a spike in AUM to max their profits. The ER spike around May 2016 is only for the direct plan. Exactly reasons are not known. We can only speculate if this the associated spike in AUM is direct plan driven.

Expense Ratio History of Axis Focused 25 Fund

Will this fund work for you?

I cannot think of anything negative to say about this Axis Focused 25. There only two caveats: (1) it is more volatile than the Nifty so do not expect downside protection from it; (2) Increase AUM (when the market moves up next) can make this a large cap oriented fund and the number of stocks may have to increase. You can consider this fund provided you balance the portfolio with a low volatile fund

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
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