The equity market has recovered most of the losses since its lows of March. S&P BSE Sensex, the bellwether index, has now reclaimed 40,000 levels for the first time since February. Anticipation of better Q2 corporate earnings, improvement in business activities, US stimulus package hopes, among others have been the encouraging factors for the markets.

That said, the Indian economy is still facing challenges on many fronts and therefore, the market movement remains unpredictable. Amid this, investors who want to invest in relatively safe avenues and earn better returns can consider investing in large cap funds.

Large caps are established and quality companies that have the potential to generate steady returns for those looking for decent returns but want to assume relatively lesser risk. But do note that not all large cap funds have the potential to reward its investors with healthy returns over the long term.

Axis Bluechip Fund (ABCF) is one such large cap fund that has clearly outscored its peers and the benchmark over the last few years and rewarded investors with superior risk-adjusted returns.

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

Data as on October 07, 2020
(Source: ACE MF) 

ABCF is a large cap fund that has caught the attention of investors with its extra-ordinary performance registered over the last few years. The fund endeavours to invest in a diversified portfolio predominantly consisting of equity and equity related securities of Large Cap companies, i.e. top 100 companies on full market capitalisation basis. In the recent corrective phase where most large cap funds have found it difficult to keep pace with prime large cap indices, ABCF managed to outperform the benchmark Nifty 50 – TRI and the category peers by a significant margin. Despite large caps tumbling significantly due to COVID-19 crisis, ABCF managed to limit downside. It has generated a 5-year CAGR of around 12% as compared to 8.9% CAGR delivered by the benchmark Nifty 50 – TRI index. Thus, it has rewarded investors with an alpha of around 3 percentage points.

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

Scheme Name	Corpus (Cr.)	1 Year (%)	2 Year (%)	3 Year (%)	5 Year (%)	7 Year (%)	Std Dev	Sharpe
Axis Bluechip Fund	16,764	6.38	13.86	11.09	11.96	15.31	17.10	0.093
Canara Rob Bluechip Equity Fund	702	14.89	14.44	10.54	11.40	14.27	18.55	0.081
BNP Paribas Large Cap Fund	844	6.28	12.12	7.05	8.70	14.27	18.47	0.035
Edelweiss Large Cap Fund	193	7.86	8.95	7.02	8.89	13.27	20.47	0.045
Kotak Bluechip Fund	1,653	10.53	10.84	6.85	8.90	14.29	21.06	0.036
Invesco India Largecap Fund	236	9.13	9.45	6.71	9.17	14.19	20.14	0.035
UTI Mastershare	6,475	9.45	8.18	6.58	8.12	12.92	19.74	0.031
Mirae Asset Large Cap Fund	18,386	8.72	9.61	6.53	11.13	17.54	21.16	0.039
JM Large Cap Fund	381	9.98	7.09	5.71	7.01	12.44	9.84	-0.010
IDFC Large Cap Fund	515	11.89	9.38	5.67	9.74	11.70	19.96	0.025
NIFTY 50 – TRI		6.59	7.88	6.85	8.84	11.65	21.20	0.038

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on October 07, 2020
(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, ABCF has done exceedingly well over the last 2 years, that has helped scale up its returns across time periods. Over the longer time period of 5 years and 7 years, the fund’s lead over the benchmark and category average has been in the range of 3 to 4 percentage points CAGR. Thus, the fund has outperformed its benchmark index and the category peers by a noticeable margin across time periods, generating significant alpha for its investors.

Moreover, its risk-adjusted return, as denoted by Sharpe Ratio, is currently the best in the category and significantly ahead of its benchmark. Overall, ABCF has been a clear outperformer and has rewarded investors with superior risk-adjusted returns.

Investment strategy of Axis Bluechip Fund

Categorised under large cap funds, ABCF is mandated to hold over 80% allocation to large caps, while the remaining can be in mid and small-caps. However, the fund maintains almost zero exposure to mid and small-caps. It aims to outperform the benchmark Nifty 50-TRI while undertaking lower risk than the benchmark.

Belonging to a process-driven fund house, ABCF focuses on investing in high quality stocks in the large cap segment having potential to grow cash flows over the medium to long term. Its portfolio is built utilising the bottom-up approach, focusing on appreciation potential of individual stocks from a fundamental perspective.

Unlike its peers that hold 45-50 stocks, ABCF holds a compact portfolio of just around 20-25 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, ROE and Cash flow.

Graph 2: Top portfolio holdings in Axis Bluechip Fund

Holding in (%) as on August 31, 2020
(Source: ACE MF)

ABCF holds just around 25 high conviction stocks in the investment portfolio. As on August 31, 2020, ABCF held a compact portfolio of 28 stocks. Names like HDFC Bank, Infosys, Bajaj Finance, Reliance Industries, and Kotak Mahindra Bank currently figure among top holdings in the fund’s portfolio with an allocation in the range of 6% to 10% each. TCS, ICICI Bank, Avenue Supermarts, HUL, Bharti Airtel, etc. stood among the other top holdings in the fund’s portfolio.

ABCF’s performance in the last one year has been driven by some of its top stock holdings like Reliance Industries, Avenue Supermarts, Infosys, Divi’s Laboratories, Nestle India, Asian Paints, etc. It has also benefited immensely from its holdings in stocks like Bajaj Finance, HUL, Maruti Suzuki India, Bharti Airtel, etc. that stood among other top gainers in the portfolio.

Around 34% of ABCF’s portfolio is exposed to Banking and Finance stocks, followed by Infotech and Consumption adding another 28% to its portfolio allocation. The remaining portion is diversified across Pharma, Petroleum, Retailing, Telecom Services, Petroleum Products, Auto, Cement and Chemicals.

Suitability

ABCF has performed exceptionally well, especially in the last couple of years, and has rewarded investors with superior risk-adjusted returns. ABCF avoids benchmarking the index and 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.

ABCF holds a compact portfolio concentrated towards few selected sectors like financials and stocks within those sectors. The concentrated nature of the fund may result in high volatility if any of the underlying stock or sector come under pressure. This makes the fund suitable only for investors having higher risk appetite and an investment horizon of 5 years or more.

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.

This article first appeared on PersonalFN here