AXA WF UK Equity: May 2024 update

• The fund has been managed by Chris St John since its launch in 2016

• The fund tends to invest more in small and medium-sized companies than lots of peers in the IA UK All Companies sector

• The return delivered by the fund has lagged the FTSE All Share index

• This was recently removed from the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The AXA WF UK Equity fund aims to grow an investment by investing in UK companies of all sizes. It has more in higher-risk small and medium-sized companies than some peers, so could work well alongside funds focused on more established, larger companies. The manager's focus on high-quality companies means it could also sit well alongside value funds that invest in companies believed to be overlooked and undervalued.

Manager

Chris St John is lead manager of this fund. He joined AXA Investment Managers in 2005 and has lots of experience managing funds focused on small and medium-sized UK companies. The AXA WF UK Equity fund launched in 2016 and gives the manager freedom to invest in UK companies of any size.

He’s supported in managing the fund by Nigel Yates. Yates began his career as a financial analyst at NFU Mutual and spent 20 years with the business, progressing to fund manager over that period. He joined AXA in 2021 as a UK portfolio manager.

St John and Yates are supported by the rest of AXA's UK Equities investment team and can also draw on the specialist knowledge of other fund managers from across the business where necessary.

Process

The manager looks for themes that are likely to drive stock market growth over the long term and thinks about how they could change consumer behaviour. Then he identifies companies likely to benefit as those themes develop over time.

St John and his team aim to invest in companies with specific characteristics, including high barriers to entry for competitors, the ability to raise prices without impacting demand for their products or services, and an experienced senior management team. They think the calibre of management teams is particularly important within small and medium-sized businesses because they can have a greater influence on the company's overall success.

Meeting those managers is a critical part of the team’s investment process. First-hand information and insight allows St John to test the quality of the company’s leadership, scrutinise their business model and evaluate the management team’s strategy to grow the business.

In recent months, the manager has added property development company Segro and landscaping, building and roofing products supplier Marshalls to the fund. Some positions have also been sold, including consumer goods company Reckitt Benckiser and oil and gas company Serica Energy.

Culture

The company was formed in the 19th century, with the name AXA introduced in 1985. AXA bought specialist investment manager Framlington in 2005. AXA's investment culture is based on proactivity and collaboration, with research shared across AXA's equity investment teams. Chris St John is a well-incentivised fund manager who has remained loyal to AXA for a number of years and we think he's dedicated to the UK Equity team.

Please note the AXA WF UK Equity fund is an offshore fund so investors are not normally protected by the UK Financial Services Compensation Scheme.

ESG integration

AXA has significantly improved its approach to ESG in recent years. The firm’s bolstered its team of ESG specialists with a significant number of new hires, split between a central team and the various investment teams.

The firm’s internal research, analysis and rating database provides ESG information on thousands of companies. The system considers the ratings awarded by a variety of different providers, with the aim to arrive at a more balanced view. The scores can be challenged by portfolio managers and amendments will be considered by the ESG Monitoring and Engagement Committee following a period of analysis and discussion.

Tobacco producers, defence companies and violators of the UN Global Compact are excluded from AXA’s ESG integrated portfolios (around 90% of AUM), which includes this fund. Companies involved in controversial weapons, palm oil (those that haven’t achieved ‘sustainable palm oil’ status), soft commodities, coal and tar sands are excluded from all AXA IM portfolios.

The firm provides a good level of transparency on their voting and engagement work, which includes an annual Stewardship report, and frequent responsible investment-related articles.

Cost

The fund has an annual ongoing fund charge of 0.77%, but through Hargreaves Lansdown you can secure an ongoing saving of 0.18%, which means investors pay a net on-going charge of 0.59%. Our platform charge of up to 0.45% per annum also applies, except in the HL Junior ISA, where no platform charge applies.

Performance

Since the fund’s launch in 2016, it hasn’t performed as well as the broader UK stock market. Over this timeframe the fund has delivered returns of 47.56%*, lagging behind the 77.33% return from the FTSE All Share index, and the 59.01% return from the IA UK All Companies sector average.

While the fund performed well for several years after its launch, the last few years have been difficult. It tends to invest more than the FTSE All Share index in medium and smaller-sized companies, which haven’t performed as well as larger companies in recent years. The fund’s growth bias has also posed a headwind as the value style of investing has held up better.

Over the last year, the fund has delivered returns of 4.30%, lagging behind the 7.50% return from the FTSE All Share index, and the 6.80% return from the IA UK All Companies sector average.

Our analysis suggests that over this period, the fund’s investments in insurance company Prudential and consultancy business FDM Group have been among the most significant detractors from returns. Some positions have performed well over the period though. Marketing business 4imprint Group and review website business Trustpilot group have been among the largest contributors to performance.

Our analysis suggests that, for several years, the manager hasn’t consistently added value through stock selection. This is a key factor we analyse when assessing a fund manager, and represents their ability to pick strongly performing companies regardless of what size or sector they’re in. As a result, we have decided to remove the fund from the Wealth Shortlist. We will continue to monitor performance and let investors know if our views change.