Value investing constitutes the purchase of undervalued stocks that have a growth potential and will provide long-term capital appreciation to investors. Companies with identical price/sales in an industry may be valued differently due to leverage, margins, and volatility of business. Value funds aim to identify and invest in those company stocks that have lower valuations, to benefit from their long-term growth.
Value investing demands patience and time; in the past, value funds have underperformed for a brief period of three years. However, the performance of value funds has seen a remarkable improvement in past one year. These funds have invested in stocks not only having lower valuations but also strong fundamentals and high growth potential.
Do note that, low valuations may not always show the complete picture. Value investing can act as a double-edged sword. Bear in mind the risk of value traps, i.e. stocks that appear optically cheap, but are not really so, because the cheap valuation is backed by poor fundamentals.
In simple words, high quality stocks may go through a phase of underperformance, like it did in the initial stage of pandemic crisis. But if a stock is consistently underperforming, even when peers are doing well, then it is a value trap. Hence avoiding “value traps” is very important while seeking value-investing approach.
Axis Mutual Fund has launched Axis Value Fund; it is an open-ended equity scheme following a value investment strategy. The fund house believes, having a consistent thought-out approach while selecting stocks can be crucial to avoid drawdowns.
Table 1: Details of Axis Value Fund
|Type||An open-ended equity scheme following a value investment strategy.||Category||Value Fund|
|Investment Objective||To generate consistent long-term capital appreciation by investing predominantly in equity and equity related securities by following value-investing strategy. However, there can be no assurance that the investment objective of the Scheme will be achieved.|
|Min. Investment||Rs 5000/- and in multiples of Re 1/-. Additional purchase Rs 1000/- and in multiples of Re 1/-||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||If redeemed / switched-out within 12 months –
For 10% of investment: Nil
For remaining investment: 1%
|Fund Manager||Mr Jinesh Gopani
Mr Hitesh Das
|Benchmark Index||S&P BSE 200 TRI|
|Issue Opens||September 02, 2021||Issue Closes:||September 16, 2021|
(Source: Scheme Information Document)
The investment strategy for Axis Value Fund will be as follows:
Axis Value Fund will predominantly invest in a diversified portfolio of companies that are methodically selected by/through the attributes of value investing.
The scheme aims to provide long-term capital growth with the value investing approach. In other words, it identifies stocks which trade at valuations lower than the overall market, their own historical average valuations, or relative to their fundamental valuations. Stocks that trade at lower valuations have the potential to provide appreciation in the future.
The endeavour will be to select value stocks while making sure that they have sound business models, to invest in screened stocks evaluated on fundamental metrics and avoid value traps. Some of the scenarios where a company becomes a value opportunity may include – a company that maintains competitive advantages, and have, however, temporarily fallen out of favour for reasons that are considered non-recurring or short-term; whose value is not currently well known; whose value has not been fully recognized by the public.
To identify the best value stocks, the fund managers will focus on companies that maintain strong balance sheets and have experienced management. Some of the measures that the scheme can use to know the valuation of a company so as to determine whether it qualifies as a value stock may include:
Present value of discounted projected cash flows;
Price-to-earnings ratio (P/E)
Price-to-book ratio; (P/B)
Price-to-sales ratio (P/S)
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation of Axis Value Fund
|Instruments||Indicative Allocation (% of assets)||Risk Profile|
|Equity and Equity related instruments||80||100||High|
|Debt & Money Market Instruments||0||20||Low to Medium|
|Units issued by REITs & InvITs||0||10||Medium to High|
(Source: Scheme Information Document)
Who will manage Axis Value Fund?
Mr Jinesh Gopani and Mr Hitesh Das for overseas investments will be the dedicated fund managers for this scheme.
Mr Jinesh Gopani is Fund Manager – Equity at Axis Asset Management Co. Ltd. He has over 19 year of experience in financial services industry. His qualifications are B.Com, Master of Management Studies (Bharati Vidyapeeth Institute of Management Studies and Research). Prior to this, he has worked as Assistant Fund Manager – Equity with Axis AMC, Birla Sun Life Asset Management Company Ltd. as Portfolio Manager, Voyager India Capital Pvt. Ltd. as Research Analyst and Portfolio Manager, Emkay Share & Stock Brokers Ltd. as Research Analyst, and at Net worth Stock Broking Ltd. as Research Analyst.
The other schemes Mr Jinesh manages are Axis Focused 25 Fund , Axis Emerging Series 1 & 2 (1400 Days), Axis Long Term Equity Fund, Axis Multicap Fund, Axis Growth Opportunities Fund, Axis Retirement Savings Fund, and Axis ESG Equity Fund.
Mr Hitesh Das is Equity Research Analyst at Axis Asset Management Co. Ltd. His qualifications include PGDM, M.Tech, B.Tech and he has over 9 years of experience in financial services. Prior to this, he was associated with Barclays Securities India Pvt. Ltd. as Equity Research Analyst, Credit Suisse Securities (India) Pvt. Ltd. as Equity Research Analyst, Ebusinessware (India) Pvt. Ltd. as Equity Research Analyst, and at Yes Bank as Risk Analyst.
Fund Outlook – Axis Value Fund
Axis Value Fund is a value-style focused diversified fund that will be investing in stocks across sectors following the value investing approach. The scheme will look for companies trading at lower valuations in their industries, with management turn-a-around, and the potential to grow earnings in the long run.
The scheme will avoid highly-levered companies within a sector or sectors and other value traps. It will aim to generate wealth through multiple re ratings and playing cycles in medium to long term. The scheme will look for emerging opportunities and its portfolio allocation will be based on upside potential along with risk management.
Being a value-oriented fund, the performance of this scheme will depend on the fund manager’s ability to select undervalued stocks with growth potential, diversify the portfolio across sectors and market caps and hold on to it until its full potential is realized.
This scheme is suitable for long-term investors who can stick through the various market cycles and have a high-risk appetite to survive the market volatility.
This article first appeared on PersonalFN here