Axis Dynamic Equity Fund (An Open - Ended Dynamic Asset Allocation Fund)
Emotions and Impact Manual market timing Emotions have impacted investment decisions Investors ended up investing at market peak and redeeming at market lows Data period : 2003 2016, Source: Internal Analysis.. Past performance may or may not be sustained in the future Analysis used regular growth plan returns for all actively managed diversified funds for which data was available during the period. All analysis was done using monthly AuM and return data. Equity Funds : All open-ended, actively managed diversified funds for which data was available during the period.. Fund Returns: Asset weighted returns for all funds. Investor Returns: Consolidated returns that were realized by all investors adjusting for their inflows/outflows into individual schemes. Returns are compounded annualized for >1yr period Copyright 2018 Axis Mutual Fund Confidential 2
Is there a scientific way to dynamically manage equity exposure? PE (Price to Earnings Ratio): Widely used measure to gauge the market status in terms of valuation. PE Buckets Average of Nifty 3 year hence return <15 31.67 15-18 16.89 18-21 9.73 21-24 0.96 >24-4.74 While PE is critical, only PE is not enough. It is also important to capture market trend and risk. Source: NSE, MFI Explorer, Internal Analysis. Data period : 31st Mar 1999 to 31st Mar 2017. Past performance may or may not be sustained in the future. Returns are compounded annualized for >1yr period Copyright 2018 Axis Mutual Fund Confidential 3
P/E Trend Volatility Holistic approach to dynamic equity investing The model throws net equity exposure based on the 3 factors (P/E, Trend and Volatility) Difference between the gross and net exposure is achieved through hedging Rebalancing happens after every 2 months (40 trading days) Measures market valuations Captures market direction 3 PILLAR APPROACH Captures market risk Total gross equity will be maintained at min 65% Please refer the investment strategy section of the SID for details of the model. Copyright 2018 Axis Mutual Fund Confidential 4
Benefits of the dynamic equity allocation approach Rational approach Eliminates human subjectivity while determining equity allocation Market Scenario Typical Behaviour of Model Avails equity taxation Factors inputs from multiple market variables Inexpensive/Cheap Equity Fund BENEFIT S Dynamic behavior depending on market scenario Fair/ Reasonable Aggressive Hybrid Fund Removes the need for market timing for investors Protects downside by reducing drawdowns Expensive/Highly valued Conservative Hybrid Fund Copyright 2018 Axis Mutual Fund Confidential 5
Specifics of our dynamic equity Volatility Trend PE<15 PE 15-18 PE 18-21 PE 21-24 PE>24 Hi 90-100% 90-100% 75-100% 50-75% 30-50% Low Mid 90-100% 65-85% 40-60% 30-35% 30-35% Low 50-85% 30-60% 30-35% 30-35% 30-35% Hi 90-100% 75-100% 50-75% 30-50% 30-35% Hi Mid 80-95% 55-70% 30-45% 30-35% 30-35% Low 50-75% 30-50% 30-35% 30-35% 30-35% The model is run on a 40 trading-day basis The gross equity exposure : 65% to 100% Net equity exposure: 30% to 100%. The difference between these exposure will be carried out using derivatives. Please ref SID for details Copyright 2018 Axis Mutual Fund Confidential 6
Specifics of our dynamic equity Valuation is represented by the trailing PE of Nifty 50 Volatility is represented by the 30 day standard deviation of Nifty 50 Hi: >17% Low: <= 17% Trend is represented by 2 variables i) difference between the 90 day and 15 day moving average of the Nifty 50, and ii) rate of change of the 90 day moving average of the Nifty 50 Assume: R = rate of change of the 90 day moving average 15DMA = 15 day moving average of the Nifty 50 90DMA = 90 day moving average of the Nifty 50 Hi: 15DMA > 90DMA and R > 0% Mid: 15DMA > 90DMA and R <= 0% OR 15DMA <= 90DMA and R >1% Low: 15DMA <= 90DMA and R <= 1% Copyright 2018 Axis Mutual Fund Confidential 7
Axis Dynamic Equity Fund Positioning & Investment approach 1. Uses back-tested model to decide equity exposure Instruments Typical Range of Investment Net Equity 30 100% Hedged Equity 0 35% Fixed Income/ Cash 0 35% 2. Once, the model throws the equity allocation, the fund manager, at his own discretion, will decide stock portfolio based on our philosophy 3. Rebalancing happens every ~2 months (40 trading days) Creating hedges using appropriate derivative instruments Multi-cap portfolio Bottom-up stock selection approach High quality portfolio Investment in short term spectrum of fixed income market to maintain liquidity High quality portfolio Please refer to SID for detailed asset allocation and Investment Strategy. Subject to provisions of SID, portfolio Allocation/Positioning will be based on the prevailing market conditions and may change depending on the fund manager s view. For equity high quality implies companies with Sound management pedigree and a track record to manage business in all economic cycles and Good corporate governance. Copyright 2018 Axis Mutual Fund Confidential 8
How does the model fare in different market scenarios? The model might not outperform in rising market, but it has beaten the market in all other market scenarios. Market Scenario Time Period Nifty 50 **Model Flat market Rising Market Falling Market Rising Market Jun 99 - Jul 03 0% 9% Jul 03 - Jan 08 46% 38% Jan 08 - Oct 08-60% -19% Oct 08 - Nov 10 52% 30% Out/Under Performance Over the long term, the model has shown 3.3% p.a. outperformance** Flat Market Volatile market Nov 10 - Dec 13 0% 3% Dec 13 - Mar 18 12% 13% Overall return (99-18) 12% 16% Source: MFI Explorer, Internal Analysis. ** Model refers to the quantitative model that determines equity allocation in the range of 30% - 100% using three parameters momentum, volatility and valuations. For complete details on the model refer to the SID. Returns are based on the back tested values. Model performance is calculated using Nifty 50 Index for equity and CRISL Short Term Bond Fund Index for debt. No expense/alpha is considered in the above illustration. Returns are compounded annualized for >1yr period. Past performance may or may not be sustained in the future. Copyright 2018 Axis Mutual Fund Confidential 9
How has the approach done over time? 1,600 1,400 1,200 1,000 Equity* Balanced* Model* Return 12.3% 11.5% 15.6% Risk 23% 16% 14% Drawdown -60% -45% -22% 800 600 400 200 0 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Equity Balanced Model Source: Bloomberg, Internal Analysis. * Equity : Nifty 50 Index, Balanced: 70% Nifty 50 Index and 30% Crisil Composite Bond Fund Index,. ** Model refers to the quantitative model that determines equity allocation in the range of 30% - 100% using three parameters momentum, volatility and valuations. For complete details on the model refer to the SID. Returns are based on the back tested values. Model performance is calculated using Nifty 50 Index for equity and CRISL Short Term Bond Fund Index for debt. No expense/alpha is considered in the above illustration.. Past performance may or may not be sustained in the future. Returns are compounded annualized for >1yr period. Data as on 28th Mar 2018 Copyright 2018 Axis Mutual Fund Confidential 10
Analysis of rolling 3-5 year periods Beats the balanced strategy with equal average equity exposure over the period Protects downside and reduces volatility as compared to pure equity strategy 3 Year Period 5 Year Period CRISIL Balanced Fund - Aggressive Index Model* Nifty 50 CRISIL Balanced Fund - Aggressive Index Model* Nifty 50 Minimum Return 0.9 1.5-3.9 2.7 7.9-1.0 Maximum Return 33.8 49.5 56.2 28.4 36.3 44 Average Return 13.2 18.2 16.8 12.1 17.0 14.7 Average equity exposure 65% 65% 100% 65% 65% 100% Please note that no expense/alpha is considered in the above illustration, It is purely based on index values Source: MFI Explorer, Axis Research. Data period : 2002 2018.** Model refers to the quantitative model that determines equity allocation in the range of 30% - 100% using three parameters momentum, volatility and valuations. For complete details on the model refer to the SID. Returns are based on the back tested values. Model performance is calculated using Nifty 50 Index for equity and CRISL Short Term Bond Fund Index for debt. No expense/alpha is considered in the above illustration. Past performance may or may not be sustained in the future. Returns are compounded annualized for >1yr period Copyright 2018 Axis Mutual Fund Confidential 11
Corrections well-managed by dynamic equity strategy 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5 yr ret Volatility (last 5 yrs) Nifty 50 Index 12% 14.6% 70 Equity + 30 Debt 11% 10.3% Model** 12% 9.7% Nifty 50 Index movement 5,000 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Nifty 50 Index -22.1% -11.3% -8.8% 70 Equity + 30 Debt -14.0% -7.2% -5.8% DEF Model -8.6% -4.5% -3.9% Source: Bloomberg, Internal Analysis. * Equity : Nifty 50 Index, Balanced: 70% Nifty 50 Index and 30% Crisil Composite Bond Fund Index,. ** Model refers to the quantitative model that determines equity allocation in the range of 30% - 100% using three parameters momentum, volatility and valuations. For complete details on the model refer to the SID. Returns are based on the back tested values. Model performance is calculated using Nifty 50 Index for equity and CRISL Short Term Bond Fund Index for debt. No expense/alpha is considered in the above illustration.. Past performance may or may not be sustained in the future. Returns are compounded annualized for >1yr period. Data as on 28th Mar 2018. Copyright 2018 Axis Mutual Fund Confidential 12
Model* : Yearly returns Yearly returns 27.5 31.4 32.1 28.7 13.2 6.8 2.1 0.6 3.0 10.1 15.5 8.0 9.4-4.2 Nifty 50 DEF Model** -4.1-24.7 CY 2011 CY 2012 CY 2013 CY 2014 CY 2015 CY 2016 CY 2017 (2011-2017) 2011 2012 2013 2014 2015 2016 2017 2011-2017 Equity Allocation Average 39% 81% 77% 96% 48% 48% 54% 63% Min 30% 30% 30% 75% 30% 30% 30% 30% Max 75% 100% 100% 100% 75% 75% 75% 100% Source: Bloomberg, Internal Analysis. * Model refers to the quantitative model that determines equity allocation in the range of 30% - 100% using three parameters momentum, volatility and valuations. For complete details on the model refer to the SID. Returns are based on the back tested values. Model performance is calculated using Nifty 50 Index for equity and CRISL Short Term Bond Fund Index for debt. No expense/alpha is considered in the above illustration.. Past performance may or may not be sustained in the future. Returns are compounded annualized for >1yr period. Data as on 28th Feb 2018. Copyright 2018 Axis Mutual Fund Confidential 13
Model* : Monthly returns Monthly returns 10 5 0-5 -10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Model** Nifty 50 Source: Bloomberg, Internal Analysis. * Model refers to the quantitative model that determines equity allocation in the range of 30% - 100% using three parameters momentum, volatility and valuations. For complete details on the model refer to the SID. Returns are based on the back tested values. Model performance is calculated using Nifty 50 Index for equity and CRISL Short Term Bond Fund Index for debt. No expense/alpha is considered in the above illustration.. Past performance may or may not be sustained in the future. Returns are compounded annualized for >1yr period. Data as on 31 st March 2018. Copyright 2018 Axis Mutual Fund Confidential 14
Recent Equity Allocation Trend of the Model** Nifty PE was between 20 22 Low volatility and favorable trend 75% Nifty PE increased to 24. Model suggested reduction in equity 50% Demonetization markets corrected. Volatility was relatively high in Dec which reduced gradually in Jan and Feb giving opportunity to add equity Equity allocation by back tested model 75% 75% Increased valuation: PE: >26 However, trend and volatility are favorable. Hence, moderate equity exposure of 50% Valuation remains high Trend not in favor ; volatility inspite of being in low range has risen in the recent past, 50% 50% 50% 50% 50% 30% 30% 30% Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 Source: Bloomberg, MFI Explorer, Axis Internal Analysis. Data period : 2002 2018.* Model refers to the quantitative model that determines equity allocation in the range of 30% - 100% using three parameters momentum, volatility and valuations. For complete details on the model refer to the SID. Returns are based on the back tested values. Model performance is calculated using Nifty 50 Index for equity and CRISL Short Term Bond Fund Index for debt. No expense/alpha is considered in the above illustration. Past performance may or may not be sustained in the future. Returns are compounded annualized for >1yr period Copyright 2018 Axis Mutual Fund Confidential 15
Model** update May 18 Nifty @ 10,736.15 and Nifty PE @ 27.19 Month Net Equity Exposure (%) Aug-17 48.8 Sep-17 48.8 Oct-17 49.7 Nov-17 50.2 Dec-17 48.7 Jan-18 48.9 Low High >24 Target allocation: 50% Last rebalancing was done in May 18. Next rebalancing is in last Jul 18 Feb-18 49.7 Mar-18 32.0 Apr - 18 32.1 May 18 45.9 Source: MFI Explorer, Axis Internal Analysis. * Model refers to the quantitative model that determines equity allocation in the range of 30% - 100% using three parameters momentum, volatility and valuations. For complete details on the model refer to the SID. Past performance may or may not be sustained in the future. Data as on 31 st May, 2018. Copyright 2018 Axis Mutual Fund Confidential 16
Current Portfolio Update May 18 Target Equity as per model 50% Average Maturity Debt 1.9 years Net Equity 45.9% Modified Duration 1.6 years Hedged Equity 20.2% Debt 33.9% YTM& 8.45% Rating Mix (High Quality Portfolio) AAA 57% Below AAA 43% Equity Large Cap 76% Mid & Small cap 24% Instrument wise (Corp Bond Portfolio) Corporate Bonds 67% Money Market Instruments 23% G- Sec 4% Allocation & maturity is based on the current market conditions and is subject to changes depending on the fund manager s view of the markets. ^The yield to maturity given above is based on the portfolio of funds as on date given above. This should not be taken as an indication of the returns that maybe generated by the fund and the securities bought by the fund may or may not be held till their respective maturities. The calculation is based on the invested corpus. Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should not be construed as recommendation. The fund manager(s) may or may not choose to hold the stock mentioned, from time to time. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). *Net equity exposure Copyright 2018 Axis Mutual Fund Confidential 17
Key themes Finance Auto & Logistics Consumer Structural growth story linked to low credit outstanding, GDP growth and market share gains for better quality players Low penetration with lower interest rate environment bodes well for the sector growth Increasing per capita income leading to improved standard of living and hence higher discretionary spends Top stocks HDFC Bank Limited Maruti Suzuki India Limited Britannia Industries Limited Bajaj Finance Limited MRF Limited Hindustan Unilever Limited Kotak Mahindra Bank Limited Mahindra & Mahindra Limited Page Industries Limited Sundaram Finance Limited WABCO India Limited Asian Paints Limited Housing Development Finance Corporation Limited Endurance Technologies Limited Nestle India Limited Source: Axis. Data as on 31 st May 2018 Portfolio biased towards large caps : 76% in Large Cap & 24% in Mid & Small cap Copyright 2018 Axis Mutual Fund Confidential 18
Features at glance Type Benchmark Exit Load Open-Ended Dynamic Asset Allocation Fund CRISIL Hybrid 35 + 65 Aggressive Index If redeemed / switched out within 12 months: For 10% of investments: Nil. For remaining investments: 1%. Fund Manager Minimum Investment Plan/Options Anupam Tiwari, Ashwin Patni & R. Sivakumar Rs. 5,000 and in multiples of Re. 1/- thereafter Growth, Dividend (Payout/ Reinvestment) Copyright 2018 Axis Mutual Fund Confidential 19
DEF approach for regular income For regular income, pure equity can be risky. Dynamic equity approach offers better risk-return tradeoff Investor can decide the amount and frequency of withdrawal and generate regular cash flows Regular Income: Works as secondary income, helps in booking profits Cost Efficient: No exit load on the first 10% of the units Tax Benefit: Withdrawals with SWP will be in smaller amounts and hence would cut down the taxes Source: Axis Internal Analysis. Initial Amount: 1 cr. Withdrawal rate: Pre-defined annual rate at which SWP amount is decided. Eg: With 1 cr of initial investment & 8% withdrawal rate, it means that 8% of 1cr (i.e. 8% * 10,000,000 = 800,000 yearly = 66,667 monthly) is redeemed. XIRR: Internal rate of return of the remaining value of investment post all monthly withdrawals. Value post withdrawal: Total market value of units available after all withdrawals. Taxation: Equity taxation is assumed. Copyright 2018 Axis Mutual Fund Confidential 20
Riskometer, Statutory Details and Risk Factors This product is suitable for investors who are seeking*: Capital appreciation while generating income over medium to long term Investment in equity and equity related instruments as well as debt and money market instruments while managing risk through active asset allocation *Investors should consult their financial advisers if in doubt about whether the product is suitable for them. Disclaimer: Past performance may or may not be sustained in the future. Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Copyright 2018 Axis Mutual Fund Confidential 21
Thank You Mutual Fund investments are subject to market risks, read all scheme related documents carefully