Mutual Funds

Axis Focused 25: Slowing down after a strong start

Anand Kalyanaraman | Updated on March 17, 2014

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Why it slipped

The fund underperformed mainly due to premature exits from winning stocks



Axis Focused 25, launched in late June 2012, has underperformed on a one-year returns basis. As the name suggests, the fund invests in a concentrated portfolio of up to 25 companies.

Its annualised return since inception (13 per cent) is higher than its benchmark Nifty’s 11 per cent and almost double the category (large-cap funds) average.

But it has slipped over the past year. Its 5 per cent one-year return has underperformed the Nifty (10 per cent) and its category average (10 per cent).

Its six-month return, too, has lagged the benchmark and category average.

Here’s what contributed to the slowing returns.

Wrong choices hurt

When the fund was starting out, it held nearly 27 per cent of its portfolio in cash. Such heavy exposure in the beginning to a low return asset gradually deployed into equities would have aided the fund’s return since inception. It helped that the Nifty gained nearly 20 per cent from July 2012 to February 2013.

Some smart picks and adroit exits also provided a kicker to since-inception returns. For instance, the stocks of Infosys, Pidilite Industries and TCS, which the scheme bought at inception, have gained 70-83 per cent since. Also, getting out of stocks such as SBI, HPCL and Coal India, which have lost 23-32 per cent, helped the fund beat the index.

The outperformance margin would have been better had Axis Focused 25 been patient with some of its initial bets. A case in point is the stock of Motherson Sumi, which has more than tripled since July 2012. The fund exited this stock quite soon — in January 2013.

Premature exits from winning stocks were a major reason for the fund underperforming over the past year. Stocks such as Pidilite Industries, Zee Entertainment, Infosys and TCS, where the fund reduced its holdings, have gained handsomely over the past year. A complete exit from winners such as HUL weighed on the fund’s returns.

Similarly, the fund’s late exit from SBI impacted its one-year returns. Besides, Axis Focused 25 caught on to some strong winners rather late. It bought into United Spirits in August 2013 and Wipro only in January this year — after these stocks had run up significantly. Also, the fund’s major pharma picks — Lupin and Sun Pharma — were bought in August 2013, missing out on the initial rally in these stocks in the early part of last year.

Axis Focused 25’s decision to completely exit the Tata Motors stock in June 2013 and instead gradually pile up on the Tata Motors– DVR also worked against it.

The fund was heavily tilted towards banks in February 2013, with the sector making up 33 per cent of the portfolio. Asset quality troubles, especially in public sector banks such as SBI and PNB, have weighed on the returns from the sector over the past year. This has been a drag on the fund’s performance. As of February 2014, the software sector has the largest share (19 per cent) in the fund’s portfolio.

Published on March 16, 2014

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