Why are Axis MF's equity schemes underperforming?

Investors are used to Axis schemes topping the returns charts. The recent under performance of these investor’s favorites rattled some investors. Many investors are worried and have been asking their advisors about the underperformance.Axis Bluechip Fund, a topper in the large cap category, has underperformed its benchmark by a huge margin in one year. According to data from Value Research, the scheme has offered 41.08% returns in one year, compared to 58.32% returns given by the benchmark and 52.58% average returns posted by the large cap category. This has put the scheme at the 63rd position among the 65 large cap schemes in the industry. However, the scheme has a strong long-term track record. In 3, 5 and 7 years, Axis Bluechip is among the toppers of the large cap category. Take a look at the short and long term performance of the scheme:1-year returns (%)3-year returns (%)5-year returns (%)Axis Bluechip Fund41.0815.0417.08Benchmark 58.3211.4814.60Large cap category 52.5810.4813.71 Other schemes that are on the same boat like Axis Bluechip are Axis Long Term Equity, Axis Mid Cap Fund and Axis Small Cap Fund. In short, the short-term underperformance is haunting most Axis MF equity schemes. Jinesh Gopani, head- equities, Axis Mutual Fund, explains the four points that are causing the near-term underperformance in the schemes, “First, we follow quality and growth investment philosophy which has always worked for us and we expect the same in future too. However, value stocks have rallied in the past year compared to growth stocks and our style is growth. Second, foreign money tends to flow in and out of growth stocks and hence these get disproportionately impacted when money flows out. Third, ours is a high alpha and low beta portfolio. So, when high beta stocks do well as they did in 2016, our portfolios underperform. However, our funds tend to bounce bank when this situation ends. The below table drives home the point on how the last 12 months have been a classic play on stocks which were high beta in nature combined with low RoEs. Fourth, we began the year on a strong base and there is a base effect at play here,” explains Gopani. With a one-year return of 48.33%, 55.38%, 74.30%, Axis Long Term Equity, Axis Mid Cap Fund and Axis Small Cap Fund are underperforming their respective benchmarks respectively. All these schemes which stand in the top three in the three and five year time periods have fallen to the bottom of the returns table in one year. Here’s a look at the performance of Axis Long Term Equity Fund: 1-year returns (%)3-year returns (%)5-year returns (%)Axis Long Term Equity49.01 13.27 16.56Benchmark68.10 11.1014.72ELSS category59.37 9.89 14.61However, some mutual fund planners say that on a rolling return basis, the schemes are still in the top quartile. “Equity funds of Axis AMC follow a growth strategy. One of the major reasons for their recent underperformance is the strong demand and rally seen in value stocks which has led the value segment outperform growth. As on 31st March, 2021 on a one year and year to date basis the MSCI India Value Index showed a strong outperformance of around 36% and 7% respectively against the MSCI India Growth Index indicating the upwards momentum in the value segment. Both value and growth have their own cycles and funds based on their investment style will show pockets of underperformance. In the past on a 5-year rolling returns basis many of Axis equity funds have shown strong consistent outperformance against their respective benchmarks which shows the capability of their team to deliver. This also throws light on the importance of diversifying one’s portfolio across different investment styles. I believe investors should not lose sleep over such a short-term underperformance,” says Rushabh Desai, an AMFI registered mutual fund distributor based in Mumbai. Planners also say that one strategy can not top in all phases of the market cycle and hence this sort of underperformance is part and parcel of investing in mutual fund schemes.“The same defensive strategy which helped these funds during the falling market is now going against them in the rising market. This happens to all schemes. No one strategy or fund can triumph all phases of the market. It is part of the fund management process and that has to be looked at while selecting a fund/fund manager or AMC before investing. As far as existing investors are concerned, I would say these are very good funds and investors should continue their investments if their time horizon is still long,” says Raj Talati, Founder, ABM Capital, a financial planning firm based in Vadodra. Talati says that these phases impact every fund and that is why instead of comparing rolling returns and past performance, investors should focus on point to point returns to get an actual picture of their profit. “Don't look for the best performing fund in all market cycles. It is very difficult or rather impossible to be no.1 all the time as you are taking calls on future, which is obviously uncertain,” says Raj Talati.

from Economic Times https://ift.tt/3mP0YiB