Axis MF says turnaround visible, but growth style dilution is a concern

Axis MF says turnaround visible, but growth style dilution is a concern

It’s been a little over two years since Axis Mutual Fund (Axis MF) faced a front-running scandal. Since then, the fund house has undertaken a significant restructuring of its senior management to set its house in order and improve the performance of its schemes. It got a new chief executive officer (CEO) and chief investment officer about a year back, as well as made changes in its fund management team. However, experts such as Arun Kumar of FundsIndia are not convinced. They see the addition of stocks like State Bank of India and DLF as a dilution of three growth styles. FundsIndia removed Axis MF from its model portfolio on this ground since the portfolio is a combination of styles.

In this interview with Mint, B. Gopkumar, the CEO of Axis MF, discusses the fund house’s efforts to turn its story around. Edited excerpts:

When can we see a turnaround in Axis MF’s schemes?

Over the last three or four quarters, we have restructured our portfolios. Our three- and six-month performance is looking much better. Much better across categories and not just one category. If you look at our largest four funds, which includes large-cap fund, growth opportunities fund, equity-linked savings scheme (ELSS) and the focused fund, these are now typically in the first and second quartile over the three- and six-month periods. These were in the fourth quartile for a long period of time. In most of the other fund categories, today we are in the third quartile. Our belief is that in the next two quarters, we should be doing much better, and we aim to be in the first quartile over time.

 

Can you elaborate on what changes have been made at the portfolio level?

A year back, same time, our concentration was 65% to top-10 stocks. Today, we are at 43%. We added 20-25% more stocks in our portfolios. Our top four funds is what people talk about, but if you look at our business cycle fund and manufacturing fund, they are doing extremely well. Last October, we called out manufacturing as an opportunity, and today you can see at least five-six new fund offers coming in that space. We are able to identify new themes while working on existing ones.

What are your views on the growth style of investing?

Our belief in the growth style of investing will play a significant role. Those who follow the growth style over a long period of time will see it come back, given the current focus on consumption, interest rates cooling off and favourable monsoon predictions. The last three-four months’ performance was affected by the PSU (public sector unit) run-up, which doesn’t fit our growth framework. We didn’t change our growth style because our advisers had gone ahead and sold on the growth style, and there is no opportunity for us to change to value style in those funds.

But if you look at our other portfolios, like the manufacturing and business cycle funds, even the multi-cap and small-cap fund, these are constructed quite differently now. My belief is that it will take at least two more quarters for the four flagship funds of ours—which did extremely well over the last 10 years—to recover fully.

We have added to our existing fund manager strength. Today, we have nine fund managers. For example, for our small-cap fund and balanced advantage fund (BAF), we have new fund managers. Our BAF today is among the top-performing funds in its category.

 

So, what’s the size of your fund management team now?

Besides nine fund managers, we have a team of 20 analysts. So, we have increased our stock coverage as well. Each analyst also has a model portfolio for the sectors they track. This was introduced by Ashish Gupta (Axis MF’s new chief investment officer) after he joined us.

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(Graphic: Pranay Bhardwaj/Mint)

Don’t you think straying too far from the growth style might deter distributors from recommending Axis MF schemes?

No, I don’t think so. See, the style of our large four funds cannot change. I can’t make Shreyas Devalkar (manages large-cap fund, ELSS, growth opportunities) be a value guy. Sachin Relekar (who manages focused fund) has always been a growth-style fund manager. All these nine fund managers have their different styles. Our portfolio itself is like a growth stock, with 80-85% of our portfolio in growth style. They could have taken some tactical value calls, but largely we are in growth style. But if you look at manufacturing as a theme, there are a lot of bottom-up stories in that.

What about other investment styles like quant and momentum that are gaining traction now?

We were early movers in the quant space, and our quant fund is the largest in its category, exceeding a thousand crores in AUM (assets under management). Our quant fund already has a three-year track record. We follow a GARP (growth at a reasonable price) investment framework. Quant as a category has done well, but it is a challenging category for distributors to communicate to their customers because they don’t know what the quant model is all about. The category has got flows from private bank and wealth channels, as these people are able to articulate it to their clients, although we are seeing some improvement now as we are doing a lot of roadshows. I am hopeful that quant as a category should grow.

Momentum is something we have still not explored. We also have an overarching principle of risk-adjusted return as part of our framework. We are not against any style. In fact, all of us in the team believe that as an asset management company, you can’t follow just one investment style. You need to have a multi-style approach. That is also the reason for having a large team of nine fund managers. We also have a dedicated value fund. We have fund managers who are adept at both growth and value styles.

 

What are your plans for GIFT City?

We will have an outbound Schroders fund (UK-based asset manager Schroders is an investor in Axis Asset Management Co.). For inbound, we will first start with a multi-cap fund. We are also exploring other products on the GIFT City platform.

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