Why Axis Bluechip is a good pick

Shrugging off Covid blues, domestic equities are on a seemingly unstoppable rally and thus trading at a valuation that is at a premium compared to both historical averages and expected earnings. This has made many conservative investors wary of direct stock investing at the current juncture.

Equity investors seeking to play it relatively safe can consider deploying money in a staggered way in large-cap stocks through the systematic investment plan (SIP) route. Fundamentally strong large-cap stocks — thanks to their size, market leadership and financial muscle — could likely weather a market downturn better than mid- and small-cap stocks. A well-run large-cap fund such as Axis Bluechip with a good track record and proven downside protection ability isa safer bet for investors.

Good show, rain or sunshine

Be it during the worst months over the last ten years, sharply volatile phases like February-March 2020 or periods of continued weakness such as April-December 2011, Axis Bluechip (launched in 2010) has protected investor wealth better than benchmark indices and most peers.

This is also well-reflected in the fund’s 3-year monthly downside capture ratio (70 per cent), which stands at the lowest among the peers that includes SBI Bluechip (102 per cent), ABSL Frontline Equity (100 per cent), ICICI Pru Bluechip (99 per cent) and Mirae Asset Large Cap (96 per cent).

The ability to handle market corrections better hasn’t impacted the fund’s ability to generate alpha. Axis Bluechip is amongst the top 5 funds in point-to-point CAGR ranking of all large-cap schemes, including passive funds, over 3-, 5-, 7- and 10-year periods. It beats the category average as well as its benchmark i.e. Nifty 50 TRI, by 200 to 400 basis points in the same time frames.

Out of the last 10 full calendar years (2011-2020) since inception, Axis Bluechip has beaten the Nifty in as many as 9 years (exception was 2016). This apart, the fund has been among the better performers among funds with at least ₹5,000 crore AUM based on 3-year and 5-year rolling returns (CAGR) over the last seven years.

Fully large-cap, quality focus

Axis Bluechip has a mandate to invest at least 80 per cent of its portfolio in large-cap stocks. The balance 20 per cent gives it a leeway to invest in smaller stocks. But over the last three years, the fund has reduced its exposure to mid- and small-cap stocks to naught. Hence, it now has an equity portfolio that is entirely large-cap oriented (97 per cent), which is unique among peers.

Axis Bluechip has also been deft in terms of shifting from equities to cash and debt, and vice-versa, depending on market conditions. For instance, the fund reduced its domestic equity exposure from about 87 per cent as of January 2020 to 78-83 per cent between February and May 2020 and then increased it to 91 per cent as of July 2020. Similarly, the fund had raised cash levels to 10-15 per cent levels from August 2018 for many months after the IL&FS crisis came to fore. This strategy is also one of the reasons for the fund containing downside well.

The fund maintains a compact portfolio of 25-30 stocks. The scheme’s top holdings as of August 2021 are Bajaj Finance, Infosys, HDFC Bank, ICICI Bank, TCS, Avenue Supermarts, RIL, HDFC, Divi's Lab, and Ultratech — these account for about 67 per cent of the corpus. The fund has the highest concentration in its top-10 stocks than peers (37 per cent to 63 per cent) because of its compact portfolio. But its volatility is lower, as evident from its standard deviation (5.29) that is both lower than category average (5.96) and like-sized peers (6.5).

In terms of sectors, financial services accounts for 38.3 per cent weight, followed by IT -18.9 per cent, consumer services - 8.3 per cent, consumer goods - 8.2 and pharma - 6.6 per cent. This gives the fund a nice blend of high-beta BFSI upside while defensives such as IT, consumer and pharma limit the downside. The focus on quality has meant that its portfolio valuation (PE 60 times) is among the highest in the large-cap fund space.

If and when the stock market’s obsession with high-quality stocks ends, exposure to names that have enjoyed valuation multiple re-rating over the past few years can be a risk.

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