Axis Core & Satellite Fund

Trideep Bhatacharya, Senior Portfolio Manager

Trideep Bhattacharya has 21 years of rich experience. He holds a B. Tech. (Electrical Engineering) from IIT Kharagpur and M. B. A. (Finance) from S. P. Jain Institute of Management & Research. He is currently a charter holder of CFA Institute, USA. 

Our views on Axis Core & Satellite Fund

Young Strategy: Looks to invest in a mix of cyclical firms with a high capital allocation threshold and strong non-cyclical brands. The portfolio is still too young to make a judgment on (a) the approach’s worth (some investors think it is still a little poorly defined) and (b) how rigidly the method is being applied.

Investment team and fund manager: Trideep, the fund manager, has been with Axis for more than 4 years, but it is impossible to predict how stable the company will be (this is a concern with AMC-driven PMSs that do not have significant Core FM equity ownership).

The Core & Satellite approach from Axis tries to combine 2 investment philosophies in a portfolio: – Fundamentally sound companies with a great brand are the foundation. – Satellite: firms that are cyclical and have a proven track record of effective capital deployment.

By using quantitative and qualitative screeners, they build an investment universe. First, a brand universe and a capital allocators universe are sought out to construct the investment universe. A brand filter is used by Brand Universe going forward.

The Brand universe is included in quantitative screeners using the following filters:

Significant brand investment: Brand Filter (advertising, marketing, communication, royalty, R&D expenses). Moreover, growth> GDP Growth and Returns> Capital Cost.

Capital Allocator History, The focus of non-financial behavior is on positive cash accruals that cover investment needs over an extended period of time. Additionally, based on the principles of finance, capital is used effectively to provide greater returns while keeping an eye on risk.

Management Interaction, Competition Analysis, Industry Visits, Margin of Safety Analysis, and Leverage Axis/Schroders Capabilities are some of the Qualitative Screeners that are monitored.

Core & satellite investing is a method of portfolio construction designed to minimise costs, tax liability, and volatility while providing an opportunity to outperform the broad stock market as a whole. The core of the portfolio consists ofpassive investmentsthat track major market indices, such as theNIFTY and the SENSEX. Additional positions, known as satellites, are added to the portfolio in the form of actively managed investments. 

Axis AMC PMS experiences the standard problems seen by large AMC-driven PMS companies (PMS as an add-on instead of a strong segregated business team, churn in the investment and portfolio team, a lack of skin in the game for the CIO, and typically loosely defined investment philosophies). Even if the AMC’s distribution capabilities can aid in the scaling of the PMS and there are advantages to research access, the majority of AMC-driven PMSs cannot compete with powerful CIO-cum-founder-driven PMS companies.

2.5% as a fixed fee option

The variable cost is 1.5% (mgmt fee) plus 15% (profit share) for rates exceeding 12%.

Exit Charge: 3% (First Year), 2% (Second Year), and 1% (3rd Year)

Core Allocation: Follow the idea of brand investment (50-70%) by picking companies with a strong brand presence, consistent compounder, and that are held for an extended period of time (five years or more). Due to its very low beta nature, Core also adds stability to the portfolio.

Satellite Allocation: Based on the idea of Efficient Capital Allocators (30%–50%), Identify businesses with a history of exceptional capital allocation, identifying equities with a cyclical component to their profits and possibilities that are currently undervalued. Stocks kept with a medium-term outlook and satellite allocation can both provide return “kickers” (18-24 months).