WF: Sales teams in the MF industry are often seen as performance pushers rather than promoters of good value. While it is quite possible for strong recent performance to continue in future as well, there is often a worry whether the sales aggression is arising only out of recent performance or out of conviction in the future as well. In this context, you have been taking quite a contrarian stance, pushing themes that are unpopular, but which your fund house had strong conviction in. Its been 4 years since you have adopted this strategy - how has it played out so far?
Karan Datta: Yes, we have been a little contrarian in our approach. The biggest vindication of our approach, in my view, comes from the fact that in these 4 years, we have added some 600,000 investors - out of which, over 200,000 are new to the industry - new KYCs. Its not just that 1 in every 3 of our investors is new to the industry - equally important is that we have happy investors.
The fundamental founding principle of Axis Mutual Fund is to help reduce volatility in client portfolios. So it did not matter whether we were talking about fixed income, equities or gold. The founding principle was how to control volatility and make the rise more predictable. This as a core philosophy is itself different from most. Pitching hybrids wasn't in vogue three years ago - we were among the few who aggressively pitched them, not because of a view on one asset class or another, but because they are best designed to deliver on what most retail investors expect - lower volatility and more predictable outcomes.
It also meant that when we started looking at what funds to start going to investors with, we found that equity as an asset class was totally shunned because of its performance. When we started, everyone was talking about gold and fixed income. If we had done the same thing as everyone did, today we would have also been sitting with the large set of unhappy investors. We went to the market trying our best to sell equity funds when everyone was shunning that asset class.
Our Long Term Equity Fund was launched literally at the start of the firm and in the first NFO we collected just Rs.12 crores. Today that fund is almost a Rs. 1000 crore fund. It's among the top ten ELSS funds in the country now. The point I am just trying to make is in everyone's mind equities have gone no where in the last five years. But this fund has proved otherwise and has added Rs. 1000 crores now and has got contribution from the distribution community across the board.
Pushing something which is out of favour, is a tough sell and its not easy to convince distributors and investors. But every time we do that we land up making money for investors. We launched our Focus 25 Fund when the index was at 16500. It was one of our toughest NFOs, market sentiment was abysmal. But each and every investor who came in during this NFO has benefited and has made money on that.
Another category we have been championing for some time is capital protection funds. All of them have an equity component and the beauty is while they participate in equity on the upside, they are capital protected. So for all practical purposes, we are selling equity funds which offers protection and that resonates well with investors.
We tell investors that if they are worried about market volatility, they should look at a hybrid fund or a capital protected fund. If the markets do well they can take advantage of that and if they do not, they are protected. This has resonated very well. So now we have a book of almost about Rs.3500 crores in these funds and more importantly is it has added thousands of new investors to this industry. One can always argue that these are sold because of distribution remuneration etc. but we would not have added new investors continuously for the last three years on these structures, if it did not make sense for the investors. We would not have launched them if they did not make sense to the investors.
Most of our investors have come in equity funds, hybrid funds and capital protection funds. They have a mix of asset classes and hence their experience with mutual funds is far better. The other aspect is that we have managed to introduce equities however small the component to them. In some way or the other, our products are designed such that there is a component of equity in them. So we moved away from asset class performance and towards asset allocation performance.
WF: On the fixed income side, many advisors and distributors have become wary of duration based strategies, perhaps due to the bad experience in 2013, and are focusing more on accrual based strategies. Is this the best way to participate in fixed income in 2014, in your view?
Karan Datta: As you know, I have been saying this for over a year, that if the entire market is on one side of the trade, the probability of it coming good is rather poor. At the beginning of last year, most of the market was bullish on duration and unfortunately, events in June-July belied those hopes. Now, when most of the market is preferring accrual as a safer option to duration, you are more likely to see duration actually come good this year. The simple point is that asset classes that don't look attractive is where the real money is. We have a product called Constant Maturity Fund, which replicates the 10 year benchmark. I see a lot of value in investing in such a product now.
Accrual as a strategy has done well for the industry. But, I personally think there is a need for a reality check on this now. Accrual strategies are increasingly becoming credit plays. And, the size of many of these credit based funds are now so large that credit accidents cannot be absorbed by the fund houses. Some of these funds are now as large as a couple of banks - that's the scale we are talking about. I don't mean to sound alarmist, but the simple point I am making is that as more money flocks into accrual based funds in the quest for higher yields, the industry needs to be a lot more vigilant about the quality of credit that gets onto their books in the process. As a fund house, Axis has completely steered clear of credit calls in the quest for enhancing yields.
WF: What is your view for 2014?
Karan Datta: If I were to select a single asset class for 2014, it would be equity. We are totally focused around that right now. We are putting all our efforts and energy in building our equity portfolio because we think that in the next 12 months, the efforts of the government over the last 10-12 months will result in serious changes. This should start reflecting in the markets.
It's time to start selling traditional open ended equity funds to investors because we are bullish on equity and it's important that the investors take full advantage of equities. I think it's time for us to promote open-ended equity funds along with ELSS schemes.
Share this article