The second wave of COVID-19 is gripping India, sparking fears about renewed restrictions to curb the spread of outbreak. In addition, India is still lagging behind many other nations in the inoculation drive given its size and density of population. This may hamper the economic recovery process and consequently, the equity markets have turned volatile.

Large-cap funds are known to provide stability to the investment portfolio during such volatile and uncertain times. They can also generate decent returns over the long term at a relatively lower risk. Thus, it is very important that you hold a significant portion of your portfolio in large caps that should preferably find a place among your core portfolio holdings.

Given the current market conditions, it is important to be cautious about your investment approach. It is advisable to opt for the SIP mode to stagger your investment and mitigate the impact of volatility.

Axis Bluechip Fund (ABCF) is among the top performers in the large-cap funds category 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 March 17, 2021
(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. Over the last couple of years where prominent large-cap funds have found it difficult to keep pace with the 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 the Covid-19 crisis, ABCF managed to limit downside and has generated a 5-year CAGR of around 18.5% as compared to 15.9% CAGR delivered by the benchmark Nifty 50 – TRI index, thus rewarding investors with an alpha of around 2.5 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
Canara Rob Bluechip Equity Fund	1,837	59.42	21.68	18.32	18.59	16.70	19.42	0.201
Axis Bluechip Fund	23,496	44.94	19.50	18.11	18.45	17.22	18.10	0.209
BNP Paribas Large Cap Fund	1,015	54.35	18.81	14.73	15.50	16.73	19.07	0.159
Kotak Bluechip Fund	2,207	64.92	17.77	14.45	15.76	16.13	21.68	0.142
Edelweiss Large Cap Fund	228	59.28	16.93	14.42	16.03	15.79	21.16	0.146
Mirae Asset Large Cap Fund	23,353	61.20	15.35	14.31	17.95	18.55	21.57	0.139
UTI Mastershare	7,503	60.35	16.22	13.66	15.21	15.13	20.60	0.136
Baroda Large Cap Fund	41	55.36	15.48	13.33	14.77	14.45	20.18	0.132
LIC MF Large Cap Fund	481	43.09	15.70	13.24	14.31	13.74	19.64	0.135
IDBI India Top 100 Equity Fund	411	56.68	17.67	13.01	14.15	14.71	20.44	0.127
Nifty 50 – TRI		66.01	14.77	14.41	15.85	13.75	21.95	0.142

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on March 17, 2021
(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 couple of years, that has helped scale up its returns across time periods. The fund has outperformed its benchmark index and the category peers by a noticeable margin, generating significant alpha for its investors. 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% CAGR.

Moreover, the volatility registered by the fund is the lowest in the category while 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. ABCF is a growth-oriented large-cap biased fund that primarily follows the bottom-up approach to stock picking, while some tactical and structural calls are taken to benefit from price corrections.

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. 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, ABCF holds a compact portfolio of just around 30 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 February 28, 2021
(Source: ACE MF) 

Following long term investment philosophy, the fund focuses on growth and high-quality stocks. As of February 28, 2021, ABCF held a compact portfolio of 32 stocks. Names like HDFC Bank, Bajaj Finance, Infosys, Kotak Mahindra Bank, and ICICI Bank currently figure among top holdings in the fund’s portfolio with an allocation in the range of 6.5% to 10% each. Avenue Supermarts, TCS, HDFC Ltd., Reliance Industries, HUL, etc. stood among the other top holdings in the fund’s portfolio.

ABCF’s performance has been driven by some of its top stock holdings like Infosys, HDFC Bank, Avenue Supermarts, ICICI Bank, Bajaj Finance, Asian Paints, TCS, etc. It has also benefited immensely from its holdings in stocks like Ultratech Cement, HDFC Ltd., Divi’s Laboratories, Kotak Mahindra Bank, etc. that stood among other top gainers in the portfolio.

ABCF’s portfolio is majorly exposed to Banking and Finance stocks with an allocation of around 40.5%, followed by Infotech, Consumption, and Pharma adding another 30.7% to its portfolio allocation. The remaining part of the portfolio is diversified across Retail, Petroleum Products, Cement, Auto/Auto Ancillaries, Telecom, and Chemicals.

Suitability

ABCF’s performance over the last few years has been extra-ordinary. The fund 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, looking for capital appreciation over a longer time period 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