AXA Framlington Global Technology: January 2021 fund update

Josef Licsauer | Fri 15 January 2021

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• Around 87% of the fund is invested in the United States, home to some of the world’s most well-known technology companies
• Lead manager Jeremy Gleeson has more than two decades of investment experience
• Fund has delivered higher returns than the broader technology sector over the longer term
• The fund does not currently feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

AXA Framlington Global Technology aims to deliver long-term growth by investing in companies that research, design and develop technology across all sectors. The managers have the freedom to invest in companies across the world, of any size, and typically target ones with quality management and high growth potential. This may include exposure to smaller companies and some emerging markets, which both add risk.

The fund could add diversification and boost the long-term growth potential of a more adventurous portfolio. Investing in a specialist area adds risk though, and our analysis shows it’s difficult for managers investing in a specialist area of the market to perform better than their benchmark through good stock picking over the longer term. That's why we're not currently considering it for the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential. We think specialist funds like this should usually only form a small part of a well-diversified investment portfolio.

Manager

After achieving a master’s degree in engineering, Jeremy Gleeson started working for Reabourne, a small technology boutique company, in 1997 as an assistant portfolio manager. In 2007, Gleeson joined AXA Framlington to manage this fund and has been lead manager ever since. He’s also lead manager of the Digital Technology fund and co-manager of the Robotics fund. These are run in a similar way and invest in some of the same companies. We think he can comfortably manage his commitment to each.

Gleeson also has the support of two portfolio managers, Tom Riley and Stephen Kelly. Riley has worked with Gleeson for around seven years and joined AXA in 2009, specialising in industrials. Kelly has been running US funds for 23 years and is naturally interested in technology given the sector makes up a large part of the US market. He brings a more detailed focus on the economy and its outlook.

The AXA style has never been a large team approach, they prefer fund managers to lead analysis. That said, Gleeson meets with other managers at least twice a week to discuss sector updates. The managers can call upon the support of regional Framlington equity teams to give additional levels of insight, challenge and knowledge.

Process

The managers focus on the shares of companies they feel are run by progressive, quality management teams, which have high potential growth and profitability prospects.

They aim to build strong, long-lasting relationships with both the companies and their management teams. They feel this provides an opportunity for higher levels of engagement, better insight into the company’s actions and access to more accurate and honest information.

Trust in management and being able to understand the reasons behind strong or poor performance is key for long-term investing. Acting too rashly by removing or adding to the fund’s investments may hinder performance, so a long-term focus has been embedded in the managers’ investment process. Over 80% of companies they have invested in since 2007, under Gleeson’s tenure, have reported in line or exceeded market expectations, although past performance isn’t a guide to the future.

On the other hand, higher-risk start-up or ‘blue sky’ companies are avoided by the managers. They believe these are largely unprofitable and tend to disappoint in the early stages.

At the beginning of 2020, automotive companies and those exposed to the hospitality industry were sold from the fund due to the impact of the coronavirus pandemic. More recently an investment in video platform provider Zoom was reduced as the managers feel demand for its services will fall following vaccine announcements and the potential to later return to some sort of normality.

The managers have the flexibility to use gearing which can magnify any gains or losses. Investors should be aware that if used, each increases risk.

Culture

AXA Framlington promotes a strong focus on investors’ interests and ensures they align with those of fund managers. Managers are rewarded on performance, with a focus on the longer term. They also focus on client growth and increasing fund size over time.

Environmental, Social and Governance (ESG) considerations have always played an important role at AXA but are now even more prevalent. Governance is at the forefront of Gleeson’s analysis, helping to identify good quality management.

Although ESG plays an important role in their analysis, a low score isn’t necessarily a reason for Gleeson and the team to exclude companies, but it triggers further analysis. It’s a good starting point to ask management teams additional questions to understand a company. Similarly, good ESG scores alone don’t provide a reason to invest.

Cost

The standard annual ongoing charge for this fund is 0.82% a year. This is one of the lowest charges among actively managed Global technology funds. The HL platform fee of up to 0.45% per annum also applies.

Performance

Despite the impact of the coronavirus pandemic and the market volatility it created, the past 12 months have been largely positive for the technology sector. The virus accelerated the shift towards digitalisation across the economy and has transformed the way many companies operate. The fund has benefitted from this, returning 49.1%* over the past 12 months. Past performance is not a guide to future returns.

Cloud based security company, Zscaler, performed strongly last year. The accelerated shift towards remote workforces and increase in companies fast tracking their digital transformation has seen demand for cyber protection rise drastically. Similarly, communications platform, Twilio Inc, and software provider, HubSpot, have helped drive performance by benefitting from the increase demand for online and cloud-based services.

In contrast, the fund missed out on some of the gains made by visual computing company Nvidia and Apple. While the fund invests in these companies, it holds less than the benchmark, meaning it didn’t gain quite as much.

Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2020.

Find out more about AXA Framlington Global Technology, including charges

AXA Framlington Global Technology Key investor information