It is observed that after every big market crash, the equities markets tend to bounce back to make for a bull run. The recent market crash that happened due to the lockdown and liquid tap running thin, the market’s valuation has dropped. This seems like a great opportunity to consider investing in equities.

But the question arises is which segment as the very nature of volatility of the equity markets prevails, and the slowdown woes will continue for few more quarters. The mutual fund houses are of the view that there is potential to gain wealth if invested wisely now. As mentioned earlier historically the markets deliver after a downturn as seen below.

Graph: The bouncing of index over the years…

Data as on June 12, 2020
(Source: ACE;MF)

If you see, the market had slumped but slowly it’s rising, and it would not be easy to pick stocks. So several notable fund houses including BOI AXA Mutual Fund believe a multi-cap fund is the best bet for investment.

Hence BOI AXA Mutual Fund launched BOI AXA MultiCap Fund. According to the fund house, volatility in Multi Caps is lowest across almost all time periods. Thus providing relatively a better investment choice to investors on a risk-adjusted basis. Multi Caps deliver consistent returns with relatively lower volatility.

While constructing a multi-cap fund’s portfolio as per the norms, there are no restrictions to invest across market cap categories. This category offers investors the ability to take advantage of changing market dynamics, so multi-cap funds offer almost similar returns to better performing diversified mutual funds during various time periods.

As per the asset allocation pattern of BOIAXAMF would typically maintain a maximum allocation towards equities based on prevalent market conditions which can be increased. Allocation to large caps would provide stability to the portfolio with reasonable returns, whereas its exposure to Mid and Small Caps would be alpha accretive.

[Read:  Why You Should Not Ignore Personalized Asset Allocation While Investing]

Note that on the risk-return curve, a multi-cap fund fits in between large-cap funds and  mid-and small-cap funds. So, do note that although  multi-cap funds  come with some safety element of large caps, they also carry the risk associated with mid and small-cap funds. Hence investors should consider investing in multi-cap funds only if their risk appetite permits, i.e. it is high, and if the investment time horizon is at least 5 years.

Table 1: Details of BOI AXA Multicap Fund

Type An open ended equity scheme investing across large cap, mid cap and small cap stocks Category Multi Cap Fund
Investment Objective To generate long term capital appreciation by investing predominantly in equity and equity-related securities across various market capitalisation.

However, there can be no assurance that the investment objectives of the Scheme will be realized.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
  • Regular
  • Direct
  • Growth*
  • Dividend (Pay-out and Reinvestment*)
*Default option
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Alok Singh Benchmark Index S&P BSE 500 Total Return Index
Issue Opens June 10, 2020 Issue Closes: June 23, 2020

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the asset allocation will be as follows:

Table 2: BOIAXA MF ‘s Asset Allocation

Instruments Indicative Allocations (% of total assets)(Minimum – Maximum) Risk Profile(High/ Medium/ Low)
Equity and Equity Related instruments 65% to 100% High
Debt (including Money Market Instruments & units of debt & liquid category schemes). 0% to 35% Low to Medium
Units issued by REITs and InvITs 0 to 10% Medium to High

^ (including derivative instruments to the extent of 50% of the Net Assets of the Scheme. Investment in derivatives shall be for hedging, portfolio balancing and such other purposes as may be permitted from time to time under the Regulations and subject to guidelines issued by SEBI/RBI from time to time.)

Large caps are 1st -100th company in terms of full market capitalization

Mid-caps are defined as the 101st -250th company in terms of full market capitalization

Small caps are defined as 251st company onwards in terms of full market capitalization

The Fund would adopt the list of Large Cap, Mid Cap, Small Cap companies prepared by AMFI for this purpose in accordance with the SEBI circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017 and SEBI/ HO/IMD/DF3/CIR/P/2017/126 dated December 04, 2017. If there is any updation in the list of large cap, mid cap, small cap companies, the fund manager would rebalance the portfolio (if required) in line with the updated list, within a period of one month.

The Scheme may engage in stock lending not exceeding 20% of its net assets, and not more than 5% of the net assets would be deployed in stock lending to any single counter party. The Scheme does not intend to engage in short selling.

The Scheme will not make investments in foreign securities or Foreign Securitized Debt. The Scheme will not invest in Structured Obligations and Credit Enhancements.

The cumulative gross exposure to Equity, Debt, Money Market Instruments, Derivatives and units of REITs / InvITs shall not exceed 100% of the net assets of the scheme, subject to SEBI circular No. Cir/ IMD/ DF/11/ 2010 dated August 18, 2010.

Scheme shall invest in repo in Corporate Bond up to 10% of the net assets of the scheme

No investments will be made in securitized debt.

Pending deployment of funds of the scheme investment in short term deposits of scheduled commercial banks will be as per the provisions of SEBI (Mutual Funds) Regulations, 1996 and relevant SEBI Circulars as amended from time to time.

(Source: Scheme Information Document)  

What will the Investment Strategy be?

For Equity Investments:

Under normal market conditions, BOI AXA Multi Cap Fund would invest 65% to 100% of its assets in a diversified portfolio constituting equity and equity-related instruments across market capitalization that the fund manager believes have sustainable business models and potential for capital appreciation.

The scheme would follow an actively managed approach allowing it the flexibility to pursue opportunities without having any bias in favour of sectoral allocations. The investment environment, valuation parameters, and other investment criteria will determine the allocation and the investment style.

Under normal market conditions and depending on the fund manager’s views, the assets of the scheme would be invested across stocks that represent a broad range of sectors of the economy, to ensure adequate portfolio diversification.

Investment approach

The fund manager would follow a top-down approach to shortlist stocks for portfolio construction of BOI AXA Multicap Fund as per the five-step process outlined below.

Diagram 1: A Clear 5 Step Investment Process

(Source: Scheme Information Document)

Under the top-down process, the fund manager would look at the global and Indian economy and the domestic policy environment and stock valuations. This would result in the identification of themes that have potential to outperform.

The final stock selection process would be a bottom-up process wherein stocks from the shortlisted themes would be picked up based on valuations.

For asset allocation, the fund manager would take the help of the qualitative framework of MVPS (Macro, Valuation, Policy, and Sentiment). Sentiment would be gauged from factors like the positive/negative breadth of the market, inflows/outflows into equity mutual funds, and FPI buying/selling figures.

For Debt Investments:

The fund manager will follow a disciplined investment process to meet the scheme-specific investment objectives. He will endeavor to construct a well-diversified, high credit portfolio that minimizes liquidity risk and credit risk.

The fund manager shall evaluate all the investment proposals to ensure that the credit risk is kept at the minimum level. The portfolios will be constructed in such a manner that the obligations to the investors are met at all points in time and under all circumstances.

The alpha to the portfolio will be generated by managing the interest rate risk across different asset classes and duration buckets. The funds would be managed to keep the scheme’s objectives in mind and with a long term investment horizon for the fund.

Diagram 2: Investment process for debt investments

(Source: Scheme Information Document)

The investment process will be a five-stage process as outlined in the above diagram. The process will be research-oriented. It will comprise of qualitative as well as quantitative research.

The macroeconomic call will be taken on interest rate direction through a detailed analysis of various influencing factors like inflation, money supply, government borrowing, private sector borrowing, currency market movement, central bank policy, domestic fiscal and monetary policy, global interest rate scenario and market sentiment.

Interest rate direction call will be supplemented by technical analysis of the market and short term influencing factors like trader position, auction/issuance of government/corporate securities, the release of economic numbers, etc. Interest rate direction call and anticipation of yield curve movement will form the basis of portfolio positioning in duration terms. Holding period return analysis will decide the portfolio selection.

Credit research will be done regularly for all companies. Credit research will include reports as well as rating rationales and other inputs from external agencies.

Both qualitative and quantitative inputs will form part of the final decision. Internal credit exposure limits, both for individual companies and groups and counterparty exposure limits for repo transactions will be part of the approved list from the risk management team.

Asset allocation will be determined based on holding period detail analysis of spread movement across different asset classes over different time periods and time buckets.

The fund manager with his team will closely coordinate with the risk management team for all credit-related issues and exposures. The Investment team at all points in time will work in a manner to maintain flexibility and responsiveness to the constantly evolving market conditions.

Who will manage the BOI AXA Multi Cap Fund?

Mr Alok Singh will be managing BOI AXA Multi Cap Fund. He is the Chief Investment Officer at the fund house having around 19 years of experience including 15 years in the Mutual Fund industry.

Mr Singh is a commerce graduate with a post-graduation degree in business administration and a CFA.

Before joining BOI AXA Investment Managers Private Limited in April 2012 Mr Singh was associated with BNP Paribas Asset Management Pvt. Ltd for 7 years and Axis Bank Limited for 4.5 years.

Some of the other schemes Mr Singh currently manages at the fund house include BOI AXA Large & Mid Cap Equity Fund, BOI AXA Conservative Hybrid Fund, BOI AXA Credit Risk Fund, BOI AXA Mid & Small Cap Equity & Debt Fund, BOI AXA Manufacturing & Infrastructure Fund and BOI AXA Short term Income Fund.

Table 3: Performance of schemes managed by Mr Alok Singh

Scheme Name Managing Since Benchmark name Scheme Returns Benchmark Returns
BOI AXA Conservative Hybrid Fund 21-May-2012 Crisil Short Term Bond Fund Index 5.82 9.65
BOI AXA Credit Risk Fund 27-Feb-2015 -17.14 8.40
BOI AXA Large & Mid Cap Equity Fund 16-Feb-2017 S&P BSE 250 LargeMidCap Index – TRI 0.60 4.24
BOI AXA Mfg & Infra Fund NIFTY 50 – TRI 0.98 5.06
BOI AXA Short Term Income Fund 23-Jan-2020 Crisil Short Term Bond Fund Index -12.36 11.40

Note: Regular plans under growth option have been considered.
Data as on June 12, 2020
(Source: ACE;MF)

As seen from the above table none of the schemes seemed to have performed well compared to their benchmark index. This doesn’t give much confidence to investors.

The outlook of BOI AXA Multi Cap Fund:

In the wake of the current economic and pandemic crisis, there has been a sharp correction in all segments of market cap, allowing a great value buying opportunity. The PE multiples of S&P BSE SENSEX, S&P BSE 100 LargeCap Index, S&P BSE 150 MidCap Index and S&P BSE 250 SmallCap Index is 21.47x, 22.16x, 24.08x, and 28.19x respectively.

Hence, given the asset allocation, the fortune of the scheme will be closely hinged on the performance of the stocks held in the portfolio. With no restriction towards any market cap, the investment strategy of the fund would be to invest in opportunities across sectors and market cap in line with the fund manager’s conviction.

Moreover, the BOI AXA Multi Cap Fund holds the flexibility to have a higher allocation to any market cap category to suitably position the portfolio in line with the investment objective. But constructing the portfolio would be a challenging task for the fund managers in the present scenario. Most of the companies earnings results have been hit due to coronavirus lockdown. Hence, the active management of stocks remains the key to wealth creation.

Note that being a multi-cap fund, BOI AXA MF does carry a notch higher risk compared to typical large-cap funds; they are usually less volatile than mid-cap funds.

[Read:  Best Multicap Funds to Invest in 2020 to Ride the Economic Recovery Wave]

This article first appeared on PersonalFN here

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