One popular fund is the Axis Blue-chip Fund (ABCF). The fund house initially called it Axis Equity Fund but has chosen to rename itself as Axis Blue Chip and classify as large cap fund in 2018, after SEBI announced the fund categorization rules. The scheme has an AUM of ~29000Crores as of latest update. Will this fund wilt like other funds under the weight of its assets? Let us find out.
Performance Comparison
We chart the fund performance against the basic large cap index like Nifty100 and Nifty500. The fund has consistently been performing better than the indices. The unexplained performance (out-performance) of the fund is 2.5% annually against the Nifty100, from NFO to now.
The above chart is for the “Regular” scheme and is net of charges. In a world where most large cap funds cannot beat the broad market, this seems impressive. I believe that this out-performance has caused the AUM growth seen above. But is this really the case? Can it continue to do as such in future? Let us explore more. Let us look at rolling 1 year returns of the fund against the Nifty100 index its primary benchmark.
Most of the time, the fund has barely out-performed the index. In fact, even recently, the fund is under-performing the Nifty100. Let us split the performance of the fund into three periods. Pre 2018, 2018-Pre Covid (Feb 2020), Covid-Now.
As can be seen, prior to classifying itself as a large cap fund, the fund barely outperformed the large cap index. After the classification, the fund chose to move to large cap focus. During the period from Jan 2018 through Feb 2020, the fund materially outperformed the index. But after Covid crisis, the fund has under-performed the index and the performance gap seems to be widening. What changed?
Large Asset Base
During the period of 2018-2020, the fund accumulated a lot of AUM. Below is the AUM growth over time (log chart base 2). From Apr 2018 through now, the AUM has grown fifteen times!!
A point to be noted is that during this period of 2016 to now, the fund manager has been the same (Shreyash Devalkar). The strategy probably has remained the same, but the fund has started to under-perform. As we discussed during review of HMCOF, fund managers need to know the fund strategy’s capacity and not accept additional funds beyond a point.
Risks of Active Mutual Funds
Axis Blue-chip fund reminds of the risks of investing in Active Mutual Fund Schemes. The fund scores the trifecta of problems with most active funds
For a substantial period, the fund was yet another glorified index fund.
Multiple fund managers that keep changing. One of the fund manager actually resurrects the fund’s performance. We do not know who the future fund managers will be and what their performance would be.
The fund manager probably knows the inherent capacity limits to his/her strategy but never discloses the same. The fund manager continues to accept more money to manage against the interests of its unit holders resulting in material under-performance.
Conclusion
It is possible that the fund manager changes strategy (again!) to generate better returns for their investor after a while. We can hope for it. I am reminded: “Hope is not a strtegy”
Avoid the fund. Invest in a low-cost index fund.