Why Axis Bluechip Fund Underperforming?

Dear friends, if you look at the performance of Axis Mutual Fund in the last 1 year it is ranked 32nd out of 33 Mutual Funds, and in the last two years, it is ranked 29 out of 30 Mutual Funds; Which makes it one of the worst-performing Mutual Fund in the large-cap category. And as per the latest Crystal Rating, it has got only a 2-star rating out of 5. On top of that, Axis Mutual Fund house has been in Limelight recently due to some irregularities in the asset management company. All these negative developments have created a big question mark in the mind of existing investors of Axis Mutual Fund. Over the last few years, Axis Mutual Fund has been one of the favorite mutual fund houses of every investor. Its mutual funds have outperformed other funds in the category as well as a benchmark by a huge margin in the past and its outperformance is not only large-cap category but across categories like Flexicap, mid-cap, small-cap, etc. Especially its mutual fund in the large-cap category that is Axis Mutual Fund has been an outperformer on a consistent basis in the past resulting in investors pumping huge amounts of money into Axis Mutual Fund. As a result, Axis bluechip became the number one mutual fund in the large-cap category in terms of AUM with the latest AUM of around 33,800 Cr. It clearly suggested that Axis bluechip is a part of the portfolio of many investors in the country. But of late this mutual fund has been an underperformer. The underperformance is so bad that now it is ranked 32nd out of 33 Mutual Fund in the last 1 year of performance, and 29 out of 30 Mutual Fund in the last 2 years of performance. So the big question here is, what is wrong with Axis Mutual Fund? Why is it underperforming? And the biggest question is, should you hold Axis Mutual Fund in your portfolio or exit? So I have done my research and tried to answer the questions. First, let's try to understand the reason for the underperformance of Axis Mutual Fund, and then we'll try to understand if you should exit from it or not. Alright, let's get started.

Reasons for Underperformance performance of Axis Bluechip Fund

Before you look at the reason for underperformance, let us first try to analyze Axis bluechip returns on year on year basis. So here is the comparative data comparing Axis bluechip performance with S&P BSE 100 TRI, which is the benchmark and the large-cap category average return.  

If you look at the period of 2017, the S&P BSE 100 generated a return of 33.27% whereas Axis bluechip generated a 39.81% return. So Axis bluechip clearly outperformed the benchmark by a huge margin and even the category average was 31.87%, So Axis Bluechip not only beat the benchmark but also beat the category average. If you look at 2018 Again, Axis bluechip has generated a return of 8.01% against the benchmark return of 2.61% so again in 2018 Axis bluechip has beaten the benchmark as well as the category average by a huge margin. The same thing happened in 2019, with Axis bluechip returning 19.97% Against the S&P BSE 100 Return of 10.92% and category average return of 11.56%. In 2020, the S&P BSE 100 return was 16.84% and the category return what 15.19 whereas Axis bluechip return was 21.19%. So consistently between 17 to 20 Axis bluechip has beaten both benchmarks as well as the category average. However, in 2021, if you look at the S&P BSE 100 has generated 26.53% return and the category average is 27.1 whereas Axis bluechip returns are 22.11%, so in 2021, Axis bluechip underperform as compared to both benchmark as well as category average.

Now if you look at the quarterly performance, in the last quarter of June 22, the benchmark returns were -9.33%, and the Category average was -9.49%, whereas the Axis bluechip returns were -12.5%. Clearly, Axis bluechip has been an underperformer in the June quarter, and even in the March quarter, if you look benchmark return was 0.8% whereas S&P Axis bluechip returns were -2.9%. So clearly, Axis bluechip has been an outperformer between 17 to 20, but in the last couple of years, it has been an underperformer. 

The reason for the outperformance especially during 2017-2020 lies in the investment style of Axis Bluechip Fund. Unlike other funds in the large-cap category, Axis Bluechip follows a growth-oriented investment style. Now in the large-cap category, options are limited. You need to invest a minimum of 80% of your money in the top 100 companies. And if you analyze the portfolio of large-cap companies, they would all have some common stocks like ICICI Bank, Reliance, Infosys, TCS, HDFC Bank, Asian paints, etc; But what made Axis Bluechip outperform? Was its bet on growth companies and willingness to pay a premium valuation for them. For example, there are two stocks that are part of Axis Bluechip's top five stock portfolio, Bajaj finance, and Avenue Supermarts, both these stocks have outperformed crazily between 2017-2020. Bajaj finance jumped 250% During 2017-2020 and Avenue Supermarts jump 200% during this period, and Axis Bluechip had a high percentage weighting in these stocks and that resulted in the outperformance of Axis Bluechip Fund. In one of the interviews, Axis Mutual Fund manager Mr. Shreyas Devalkar can mention that the market has rewarded quality and growth style of investing post demonetization, which is reflected in our performance. In fact, Axis Bluechip still holds a high stake in both these stocks. Currently, it has 8.53% holding in Bajaj finance and 7.13% holding in Avenue Supermart. There was a time last year when Bajaj finance was the number one stock in its portfolio with a 10.5% holding. And both these stocks were expensive in terms of valuation. For example, Bajaj finance used to trade in the PE range of 70 to 80. And Avenue Supermart PE was in the range of 110-130 which was a super expensive valuation. And then what we saw is a huge correction in both these stocks. Avenue supermarket tank nearly 45% from the highs of 5900 levels of 3200 Although it is currently trading at levels of 3800 and Bajaj finance tanked 35% from highs of 8000 levels of 5200 currently, it is at levels of 5800. By the way, these are just a couple of examples to help you understand the growth-oriented investment style of Axis Bluechip Fund. 

So due to sharp correction in such growth stock, Axis Bluechip Fund has underperformed and another great comparison is the investment style of HDFC Mutual Fund which follows more of a value style investment. Its CIO Mr. Prashant Jain is very clear about his strategy of investing more towards value pick that also includes some of the top PSUs of the country like NTPC, Coal India, SBI, etc. Now HDFC AMC is one of the top fund houses in the country, but it has been an underperformer in the past. The reason is due to its value-based investment style. HDFC mutual fund did not perform well for a really long time until the beginning of this year. Hence HDFC mutual funds were a big-time underperformer in the past, but now the scenario has changed. While Nifty has fallen 10% year-to-date, Coal India is up 20% year-to-date, NTPC is up 12% year-to-date, and SBI is up 3.5% year-to-date. No wonder HDFC Top 100 Fund has been the second-best performing mutual fund year-to-date and in the last 2 years. It basically means that everything was down to the investment style of fund managers. Until this year growth investing outperformed value investing. In fact, I remember people saying that value investing is dead, but this year value investing has outperformed growth investing by a big margin. A classic example is ITC which is up nearly 33% year-to-date while Nifty is down nearly 10%. And since Axis Mutual Fund followed growth investing, it outperformed in the past and HDFC Mutual Fund followed Value-Based Investing it underperformed in the past, but now the scenario has completely reversed. I hope now you clearly understand the reason behind the outperformance and underperformance of Axis Mutual Fund. 

Invest or Exit from Axis Bluechip Fund?

Now let us discuss what should be the investment approach in the current scenario? Should you remain invested or exit from Axis Mutual Fund? Before we conclude if you should stay invested or exit from Axis Bluechip Fund, I want to discuss a very common mistake people make while investing in mutual funds, and the mistake is, simply investing based on past returns. With this mindset, retail investors visit the website and seek the mutual fund with the highest return in the last 1-3 years, "Picks the fund with the highest return." And if you are a mutual fund investor, just ask yourself, "How did you invest?" Didn't you just look at the past returns? because that's what the majority of investor does. Also, the fact that it is also very easy for mutual fund agents and all the experts to suggest mutual funds with top performance in the past. Since Axis Bluechip outperformed in the past, every mutual fund distributor showed great returns and suggested investing in this mutual fund. Now that Axis Mutual Fund is not performing, what should you do? Should you exit and start investing in HDFC fund since it is doing well now. But what is the guarantee that HDFC funds would continue to outperform? What if after 5 years, you find that now HDFC funds are not doing well and some XYZ fund is outperforming? Would you switch to the new fund house again? Well, that would be a classic mistake. If you keep switching your funds, you will never be able to beat the benchmark. Forget about generating high returns, you will end up with very poor returns if you continue to switch based on the fund performance.

So, basically, the decision to select the right mutual fund should depend upon the investment style of that fund manager, you need to look at the portfolio of the mutual fund and understand the investment style, and then you should ask yourself, "Whether you like Value Based Investing or Growth Based Investing?" and accordingly you need to select the fund and stick with it even during the rough time. Although it is not a cakewalk for a normal retail investor to identify the fund manager's investment style. By the way, there are also the parameters like Expense ratio, Sharpe ratio, Standard deviation, etc. And you should always keep in mind to invest in funds with a lower expense ratio but the most important parameter is to look at the portfolio of the mutual fund and the fund manager details who is managing the portfolio that would give you a clearer picture of the mutual fund. But like I said, "It is not a cakewalk, it is extremely difficult for normal retail investors to make the right judgment." And more importantly, what if the fund manager leaves the company? The new fund manager might have a completely different investment style. On top of that, it has been proven in the past that more than 50% of Active Mutual Funds struggled to even beat the benchmark in the large-cap category. That means there is a 50% probability that the active mutual fund you selected in the large-cap category, would not even beat the benchmark. Forget about generating high returns. Hence, if you are a new investor, then the best option is to simply invest in a Nifty 50-based index fund. So that you will at least get these returns similar to the Nifty 50 index and would never have to think about switching the mutual fund. The problem is that investors look for a thrill in the stock market and mutual funds. They don't like boring investments and passive investment is very boring. On top of that, you know that passive funds can't beat the benchmark, so there is no excitement. Hence, people avoid index funds but that reminds me of one great quote, It says "If investing is entertaining if you're having fun, you're probably not making any money." Good investing is boring.

Now if you're an existing investor in Axis Bluechip Fund, then you can continue to hold your investment if you believe in a growth-oriented investment style or this fund house. However, if you have more money to invest, it is better to invest in an index fund. As far as irregularity in Axis fund house is concerned, it is really disappointing to know that few people in the company got engaged in Front-running where few fund managers are interested in the same stocks from their personal account before executing the orders from Axis Fund house. Basically, to benefit from the rise in share price because when fund house invests 100s of crores in stock, it is expected to jump. 


Although that happened at an individual level and not at the corporate level, still it is disappointing. Such an incident reminds us of the fact that it is very difficult to trust someone. In fact, you should never trust anyone blindly with your money, not even me. Today, there are many people suggesting stocks and mutual funds and giving free tips. But I've been saying this from day one "Do not trust anyone blindly". Learn how to invest your money and do your research before investing because the best investment you can do is an investment in knowledge. So that once you know the skill to manage money, you will not have to depend upon others.

So that's all in this article, I hope now you understand the reason for the underperformance of Axis Bluechip Fund. Well, it might happen that in the future, the growth investment style again pick up but for now, this style has been badly beaten down. That is the underperformance of the Axis Bluechip Fund, and like I said the best way to invest in the large-cap category is via an index fund. Just simply invested in a Nifty 50-based index fund and you are sorted forever. I hope you will find this article useful. 

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