Thread by @ETMONEY

Small cap funds are supposed to be volatile.

But @AxisMutualFund Small Cap is an exception.

In 11 quarters when its category was in red, the fund fell less in each one of them.

In fact, there were 3 quarters when the fund beat its peers by 20% (points).

A 🧵on its strategy.

Let’s start with its performance.

After @quantmutual Small Cap, Axis Small Cap has been the 2nd best-performing small-cap fund in the last 5 years

Axis Small Cap has beaten its category considerably.

Here are its 5-year returns:

Axis Small Cap: 18.4%
Category Average: 12.5%

Similar outperformance is seen against its benchmark.

Since its inception (Nov 2013), the fund has delivered an SIP return of 21.5%.

Its benchmark #return is 14.5%.

Here’s how a Rs 10,000 SIP would look since the fund’s inception:

Fund: Rs 30.1 lakh
Benchmark: Rs 21.5 lakh

How did the fund do it?

The short answer is better downside protection.

And the portfolio of the fund highlights two strategies that helped the fund fall less during tough times.

• An extremely diversified portfolio
• Frequent cash calls

Let’s understand in detail ⬇️

• Well-diversified portfolio

A small-cap fund, on average, holds 70 #stocks.

Axis Small Cap holds nearly 80 stocks in its portfolio

The following graph shows how the fund manager, Anupum Tiwari, has been increasing the number of stocks in the fund.

• Cash calls

Tiwari doesn’t shy away from taking cash bets.

Take February 2020, a month before the market crash of March 2020.

Axis Small Cap’s cash holding was 17% vs the category average cash holding of 8%.

Check how the fund’s cash allocation has moved over time.⬇️

As far as stock picking is concerned, the fund manager follows a bottom-up approach

He goes for quality companies that offer:

• Sustained return on capital employed
• Sustainable business model
• Sound balance sheet to withstand shocks

The fund has built a good track record.

And when it comes to managing its downside, it is one of the best small-cap funds.

But small-cap funds can be volatile.

If you plan to invest, be prepared for the ups and downs.

Check the thread below⬇️

https://twitter.com/ETMONEY/status/1567505659058601986?s=20&t=9YxYcG57R9bpwfN9GvF47w

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