AXA Framlington UK Select Opportunities - takeover activity boosts returns

Dominic Rowles | Thu 10 October 2019

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• Chris St John is an experienced fund manager with the support of a strong team
• His fund beat the broader UK stock market over the past year
• We prefer to access his talent through another UK-focused fund he runs

Our view

The UK's home to one of the world's most unloved stock markets. Brexit and other political uncertainty has put many people off investing here. But Chris St John thinks they could be missing a trick. He thinks high quality companies with strong long-term growth prospects are being overlooked and their share prices are now at attractive levels.

We think St John has the potential to deliver strong performance over the long run. He's experienced, well incentivised, and has the support of a well-resourced team. He also has the flexibility to invest wherever he finds the best opportunities – from the giants of the FTSE 100 down to smaller companies with unrivalled growth potential, but more risk.

However, we prefer to access St John's talent through another UK-focused fund he manages. Its smaller size makes it more nimble and lets the manager invest more in small and medium-sized companies – an area we think he’s excelled in over the long run. That's why this fund doesn’t feature on the Wealth 50.

What changes were made?

The fund remains focused towards small and medium-sized businesses although exposure to the UK's largest businesses has risen over the past year. This is a result of investments in companies like online estate agent Rightmove and vehicle marketplace Auto Trader being promoted to the FTSE 100.

The manager recently added to an investment in defence company Chemring. He's particularly excited by Roke, a Chemring-owned research and development business which specialises in communications and cyber security. The manager expects it to do well as companies invest more money to secure their networks.

In contrast, an investment in betting technology company Sportech was sold after St John lost faith in its management team.

How's the fund performed?

St John's managed UK funds for more than a decade. Our analysis of his long-term track record shows he's delivered strong returns by investing in companies with outstanding prospects. We expect his stock picking skills to drive future returns, although there are no guarantees.

St John took control of this fund following Nigel Thomas' retirement in January 2019. It's risen 16.9% under his tenure, while the broader UK stock market rose 14.4%. This is a very short period of time though and past performance is not a guide to the future. One of the fund's best performers was process outsourcing business iEnergizer. Its shares rose strongly as the company grew revenues and profits faster than expected.

The fund also benefited from a number of takeovers over the period. Plastic packaging company RPC Group was taken over by a larger competitor and webuyanycar.com owner BCA Marketplace was bought by private equity firm TDR Capital. Investments can fall as well as rise in value and you may not get back what you invest.

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2019

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