After sharp volatility over the past year, the market is again on a roll with the Sensex crossing the 40,000-mark. But there is wide divergence in the performance of stocks.
A few large-cap stocks have done very well and driven up the benchmark indices, while many large-, mid-cap and small-cap stocks languish. The market rally has been narrow and there seem to be pockets of buying opportunities across the market capitalisation spectrum.
Investors seeking to benefit from this can consider buying a high-performing multi-cap fund that has the flexibility to invest across the board. Axis Focused 25 fund is among the best performers in this category.
Its annualised returns of nearly 20 per cent over the past year, 17 per cent over three years and 13 per cent over five years place it in the top quartile among multi-cap funds. The fund has also outperformed its benchmark Nifty 50 TRI comfortably.
In the focused fund category too, Axis Focused 25 is among the best. It is rated four star by the BusinessLine Star Track ratings . The fund, launched in 2012, has put up a strong performance in the past few years, after a somewhat subdued show until 2016.
Strategy
As mandated by SEBI, funds in the focused category can invest in a maximum of 30 stocks. Axis Focused 25 is an open-ended fund and invests in a maximum of 25 stocks across large-cap, mid-cap and small-cap spaces.
The fund adopts a bottom-up investing strategy with high conviction bets. Its diversification across sectors and focus on sustainable, high-quality businesses mitigates the concentration risk generally associated with relatively small portfolios.
The fund’s high active allocation approach results in significant divergence from the benchmark composition. At the same time, it seeks to keep overall portfolio risk low by investing about half the corpus in core stocks that have low volatility.
Portfolio
The fund generally does not buy PSU stocks. As of October 2019, the fund had 24 stocks with about 83 per cent of the portfolio in large-caps, about 15 per cent in mid-caps and the rest in cash and equivalents.
The chunk of the portfolio (about 43 per cent) is in finance stocks, followed by information technology and consumer goods (about 12 per cent each).
Top stock holdings include HDFC Bank, Bajaj Finance, Kotak Mahindra Bank, Bajaj Finserv, TCS, Avenue Supermarts, Asian Paints, Pidilite Industries and Reliance Industries.
Well-timed moves such as buying into Asian Paints and Reliance Industries and exiting from Varroc Engineering and SPARC over the last year, have held the fund in good stead.
Asset shifts
The fund has, in the past, made good use of its flexibility to shift allocations across market-caps, depending on its assessment of market conditions and valuations. For instance, a couple of years ago, around end-2017, about half the fund’s portfolio was in large caps, about a third in mid caps and about 5 per cent in small caps.
Since then, the fund has exited its small–cap positions, moderated its mid-cap holdings and increased its large-cap exposure. This has helped it do well amid volatility over the past year or so, that impacted smaller stocks the most. The fund has also not shied away from reducing equity holdings and increasing cash position when it deems fit. For instance, about a year ago, as much as 15 per cent of its portfolio was in cash and equivalents.