AXA Framlington American Growth: January 2022 fund update

• Lead manager Stephen Kelly has more than two decades of investment experience
• A reasonable way to invest in businesses with strong growth prospects in the world’s largest stock market
• The manager takes account of environmental, social and governance (ESG) risks and opportunities when assessing companies and has the support of the ESG and Responsible investment team at AXA
• This fund doesn’t feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The AXA Framlington American Growth fund aims to provide investors with long-term capital growth in excess of the return provided by the S&P 500. We think this fund could work well in a portfolio with little exposure to the US, invested for long-term growth. Its focus on medium-sized and large cap companies means it could also sit well alongside a higher-risk US smaller companies-focused equity fund or a US fund with a value bias.

Manager

The fund is managed by lead manager Stephen Kelly with the support of deputy manager David Shaw. Kelly has more than two decades of investment experience and has been lead manager of the fund since joining AXA 25 years ago. Shaw also has over two decades of investment experience and joined AXA from Aerion fund management in 2016.

Both individuals have some additional fund management responsibilities. Kelly also runs the equity portion of a multi-asset fund, while Shaw is lead manager of the AXA Framlington US Select Growth fund and co-portfolio manager of the AXA WF Framlington Evolving Trends fund. We do not consider these additional responsibilities to be excessive or a distraction from managing the American Growth fund.

Process

Stephen Kelly spends his time looking for American companies which have clear open-ended growth opportunities ahead of them. These businesses are often leaders in their field with strong balance sheets and robust growth. It’s also important to Kelly that the management of these companies have a proven record of capitalising on such opportunities in the past. This gives him confidence that they will be able to replicate this success, although this is not guaranteed.

There are some companies Kelly screens out of his investable universe if they don’t meet the characteristics he’s looking for. But when he finds a company worthy of investment and is buying the stock for the first time, Kelly usually takes an initial 1-1.5% sized position, this can then increase over time as conviction grows. The manager also uses a self-imposed constraint whereby an individual holding can’t have an active weight greater than 2%. This means if a company represents 5% of the benchmark, it wouldn’t be any larger than 7% of the fund. Kelly manages this by trimming positions if necessary. The fund can invest in smaller companies which adds risk.

Kelly believes that the pandemic has accelerated the structural shift towards a more digital economy as people have had to connect online in many cases, rather than in person.

In recent months Kelly has made some changes to the fund’s investments. The cloud communications platform Twilio was added because he believes the company’s solutions have the potential to disrupt traditional communication systems. Electric vehicle maker Tesla was also added to the fund with Kelly believing the company possesses a sustainable competitive advantage over its competition as electric vehicles are increasingly adopted. Some investments have exited the portfolio too. Health care product supplier Quidel was sold over concerns about its management team’s ability to forecast demand for their products. Care services business Amedisys was also sold after the company announced its performance was likely to fall short of analyst expectations.

Culture

The company was formed as an insurance company in France in the 18th century, with the name AXA introduced in 1985. The investment arm was formed in 1994. AXA Investment Management 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.

The manager also takes account of ESG risks and opportunities when assessing companies and has the support of the ESG and Responsible investment team at AXA. They assess companies based on six ESG factors which Kelly then considers when making an investment decision.

Kelly’s variable remuneration is partially dependent on the performance of the fund. This aligns his interests with investors as when the fund performs well, he receives a greater reward.

Cost

The fund’s net annual ongoing charge is 0.82%. The HL platform fee of up to 0.45% per year also applies.

Performance

The AXA Framlington American Growth fund has performed well over the long term. Since Stephen Kelly took over as lead manager in February 1997 the fund has delivered returns of 1597.63%*, compared with a 733.29% gain by the IA North America peer group. Past performance is not a guide to future performance.

A big challenge of investing in the US is that the share prices of well-known US companies can react very quickly to new information. This makes it difficult to outperform the index consistently. Part of the fund’s strong performance in recent years can be attributed to the tailwind provided by its growth style of investing. Investors should note that while growth-style investing has done very well in recent years compared to value investing, a well-diversified and robust portfolio should include a variety of styles, as well as different asset classes and geographies.

Our analysis suggests that over the last year the fund’s investments in the Technology sector have been a key driver of performance. As a result, technology companies Alphabet and Microsoft have been among the most significant contributors to the fund’s performance. This is a short timeframe though so you should consider this performance in the context of a longer time horizon and not in isolation.

Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2021.

Find out more about AXA Framlington American Growth, including charges

AXA Framlington American Growth Key investor information