Axis Focused 25 Fund: High on conviction, low on volatility

Investors seeking to build a core portfolio with a concentrated mix of large-cap stocks that can withstand market volatility as well as deliver good long-term returns can buy units of Axis Focused 25 Fund.

The scheme is biased towards quality in its compact but high-conviction portfolio. It has demonstrated a good track record of generating alpha, underlined by its judicious use of the flexibility to invest across the entire market capitalisation spectrum.

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Over the past five-year period, the fund has delivered 17.14 per cent returns, exceeding the benchmark Nifty 50 TRI return of 14.9 per cent, as well as the focussed category average return of 14 per cent. Since its launch in 2012, Axis Focused 25 has delivered annualised returns of 16 per cent against the benchmark’s 13.7 per cent.

Investors with at least a three-year horizon can take heart from the fact that the scheme has consistently outpaced the benchmark as well as the category average over the past three- and five-year periods. Rolling returns for three- and five-year intervals — periods which have been unusually bullish for stocks — show that the fund has never given negative returns. In line with equity portfolios with a reasonable large-cap tilt, the fund’s 58.9 per cent gain in the past one-year period is below the benchmark (88 per cent) and the category average (69.8 per cent). But such short-term underperformance should not be alarming because focussed funds view investments in companies over their business cycle.

Axis Focused 25 has outpaced many other focussed schemes that have a similar number of equity holdings, such as Motilal Oswal Focused 25 and SBI Focused Equity, over the past three- and five-year periods. Investors can take the SIP route to mitigate volatility, while those with a high risk appetite can invest lumpsums during a sharp market correction.

Strategy and portfolio

The scheme invests in a compact portfolio of a maximum of 25 stocks across large-, mid- and small-cap spaces. The idea is to maintain healthy allocation of up to 25 stocks and nurture companies over their business cycle without being affected by short-term market volatility. Currently, the fund holds about 21 stocks in the kitty with about 90 per cent invested in large-cap stocks and 6 per cent in mid-caps.

The top five stock concentration is about 43 per cent, and the top three sectors — financials, software and services — account for about 65 per cent in the portfolio. The fund took an active debt and cash call during the market fall in early 2020 and later upped the allocation in equities.

Powered by a bottom-up investing strategy with an eye on risk management, the scheme follows an active high-conviction investment approach in stock selection. It predominantly invests in large-cap stocks, which gives room for stable growth and shelter during volatile phases.

The fund has upped its allocations in software and finance in recent times and trimmed the allocation in the petroleum products and consumer non-durables sectors over the last six months. In software, it has a large allocation of 9 per cent in Tata Consultancy Services. Infosys and Wipro have allocations of 3 per cent and 2.4 per cent, respectively.

It recently added power and healthcare services sectors — stocks such as Torrent Power and Gland Pharma.

The fund adopts a long-term holding strategy and continues to hold stocks such as Bajaj Finance, TCS, Kotak Mahindra Bank, Avenue Supermarts and HDFC Bank.

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