AXA WF Framlington UK - an unconstrained, thematic approach

Dominic Rowles | Tue 16 May 2017

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• The manager’s conviction in medium-sized UK companies has recently increased
• Chris St John has an excellent long-term record of adding value for investors, according to our analysis
• We continue to hold Chris St John in high regard and his fund retains its place on our Wealth 150+

Our view

The UK stock market is home to some of the most innovative and dynamic businesses in the world - from the pillars of global industry through to the smaller companies with the potential to become the market leaders of tomorrow. The AXA WF Framlington UK Fund affords Chris St John the freedom to cherry-pick what he believes to be the best businesses in the UK, regardless of size.

The manager has the backing of a well-resourced team at AXA and draws on support from other fund managers, including the highly-experienced Nigel Thomas. The fund remains relatively small which means it is agile enough for the manager to take advantage of almost any opportunity that presents itself.

According to our analysis, Chris St John has added significant value through positive stock selection throughout his fund management career and we expect this to continue, although past performance is not a guide to the future and there are no guarantees. The fund currently features on the Wealth 150+ list of our favourite funds across the major sectors.

Portfolio themes

Chris St John identifies market themes and invests in companies he feels are best placed to benefit as the theme develops. Current themes include companies that are challenging traditional ways of doing business, many of which do not own a significant amount of physical assets, which helps keep costs down. Uber, for example, is the world’s largest taxi company, but it owns no taxis. The world’s largest accommodation provider, Airbnb, owns no property, while Facebook is the most popular media owner yet creates none of its own content.

The fund currently invests in online property advertising company Rightmove. In an industry fragmented by thousands of individual estate agents, the company provides a centralised website that allows sellers to advertise to an audience of thousands of potential buyers. Rightmove currently has an 85% share of this market, as measured by web pages viewed.

Companies that provide market-leading customer service are also sought by the manager and he believes construction materials provider Breedon fits this criteria. Service is generally poor in this sector, with missed and delayed deliveries commonplace. Breedon exploits the weakness of its competitors by offering unrivalled service at a premium charge. On a large building site where delays can be incredibly costly, the premium is often seen as a small price to pay.

Performance

Since launch in March 2016, the fund has gained 19.9%* compared with 22.8% for the FTSE All-Share, although this is over a short time period and not an indication of future returns.

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2017

Fund data before April 2016 is not available for this fund.

Higher -risk small and medium-sized companies, to which the fund is biased, derive the majority of their income from the UK. Performance was therefore volatile following the UK’s vote to leave the European Union last June as the fund’s investments in domestically-orientated companies, such as Paddy Power, Betfair and Dixons Carphone, performed poorly. Small and medium-sized companies have recovered more recently and outperformed their larger counterparts to the benefit of the fund.

Meanwhile the manager’s conviction, particularly in medium-sized companies, has increased as rising share prices have been supported by strong corporate earnings growth of between 7% and 8% per year over a sustained period. The manager expects strong earnings growth to continue and for share prices to keep pace with earnings over the long term.

Smaller and medium-sized companies are often acquired by other companies, which could increase their value and help fuel their growth prospects, to the benefit of their share prices. The fund has seen several mergers and acquisitions take place over the past few months including the takeover of electrical product manufacturer e2v by US competitor Teledyne.

Please note the AXA WF Framlington UK Fund is an offshore fund and therefore investors will not be protected by the Financial Services Compensation Scheme.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.