I have two questions. First, I have noticed that Axis, as a fund house, has been doing quite well across different equity categories. How is this possible? Second, SEBI tightly classifies the universe of large-cap, mid-cap and small-cap companies. Now, in the small-cap space, I have noticed that some schemes are giving handsome returns, while others aren't. How is it possible if the stock universe is the same for all funds?
Axis Mutual Fund house is doing well because its strategy seems to be working. Different fund houses have different investment approaches. As a matter of fact, different strategies tend to work at different times. If you recall two years back, a different set of funds were performing better, whereas Axis funds were not performing relatively good.
Today, Axis funds are impressive. They have been taking fundamental views by focusing on high-quality companies irrespective of situations. One may think that once the market goes up or the good times are back, Axis funds may not look outstanding, as other funds may catch up with them. Also, relatively not-so-strong companies - those are out of favour now - may start making a comeback.
So, the situation can be different at different times. Having said that, the performance of Axis funds is definitely good. But more than their current performance, what is more likeable about the strategy of Axis funds is that they have stuck to their respective strategies through thick and thin. Even when they were not doing well, they did not budge instead they carried on the same thinking. This is what has been able to provide them with such notable performance.
To answer your second question, some small-cap funds do well, while some do not. In fact, managing a small-cap fund is quite challenging. If one looks at the portfolio of large-cap funds, to an extent, they almost look similar. Or by and large, a good 50 per cent of the fund portfolios could look similar.
When it comes to small-caps, each fund is different. There are a number of primary drivers - most important is the winner's curse, which is quite visible in the case of small-cap funds. The fund that does well gets more money. Consequently, it gets difficult for the fund to replicate the previous good performance. This is because in the case of small-cap funds, fund managers have to hunt for good investing ideas and opportunities continuously.
In the last one- to one-and-a-half year, the attitude of the market, in general, has been quite unfavourable towards small-cap funds. Further, best-performing funds do not always do well or poor performers make a comeback. Thus, one must not just look at numbers and form opinions. This is because the performance of small-cap funds is very cyclical.