Axis Value Fund NFO review: Will a differentiated style of investing pay off?

Axis Mutual Fund (Axis MF), which generally follows the growth style of investing, and with a fair degree of success in it, has launched a new value scheme. The new fund offer (NFO) is already open.

Now, Axis MF will manage the scheme a bit differently from other value funds, which largely take the traditional approach to value investing.

“We are not going to heavily focus on just low valuations. We will be looking for quality companies available at reasonable valuations. The starting point will be lower multiples, followed by quality,” says Ashwin Patni, head of products and alternatives, Axis MF.

Traditional value investing involves looking for companies or sectors that have been beaten down and therefore available at very low valuations. While making such investments, traditional value investors also look for some potential triggers that can lift a company’s shares.

Patni adds, “We are okay if investors want to wait and watch how the portfolio gets built, and how this investment style is put in action.”

The fund would also look for investment opportunities where there is possibility of turnaround by the company’s management.

“We will avoid businesses where the margins are weak and debt levels are high,” Patni says.

Axis MF’s presentation states that it will avoid value traps, which may happen when the focus is on looking for beaten-down stocks.

Value traps are those companies that attract investors due to their extremely low valuations, with the possibility of strong gains upon recovery. However, some of these companies may never see a recovery and even end up further eroding shareholder wealth.

Deepak Chhabria, chief executive officer and director, Axiom Financial Services, points out that in India it may be difficult to realise the full potential of traditional value investing.

“In developed markets such as the US, value investors can force the companies to unlock value by monetising their assets, whether they be land parcels or investments in other companies. In India, however, it is not possible for investors to force company promoters to do that,” he says.

What doesn’t The different style of Axis Value Fund would make it difficult to gauge how the fund might do in different market cycles.

“So far, most of the equity funds Axis MF has launched have done well. But, here we need to see how the portfolio is constructed,  the companies they are investing in etc., to get a sense of this investing style,” says Ravi Kumar TV, founder of Gaining Ground Investment Services.

The value funds that follow the traditional approach tend to do well and even outperform at the initial phase of economy recovery. In the last one-year period, value funds have staged a comeback and have given 63 percent returns on an average. Flexi-cap funds, with a greater flexibility, gave 57 percent return.

Also read: How Prashant Jain finally managed to revive HDFC mutual fund’s equity schemes, despite sticking to value investing style

At the same time, the traditional value investing style can go through long periods of underperformance as the markets could take time to again realise the value of a beaten-down company.

Moneycontrol’s take As Axis Value Fund would follow a different investment strategy from what other value funds traditionally do, it would be wise to watch the portfolio moves over a few months to a year. This would give us a good sense of how Axis MF looks at value investing. How long the scheme retains its holdings would also give us a perspective. It would be in investors’ interest to to wait for a while to see how this fund shapes up.

The NFO is open for subscription till September 16, 2021.