AXA WF UK Equity: December 2022 fund update

• Chris St John is an experienced UK investor who has added value through good stock selection
• The manager looks for themes that are likely to drive stock market growth over the long term and invests in companies with the potential to benefit from these
• The manager has a good long-term track record, boosted by his ability to select companies with outstanding prospects
• This fund features on our 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.

Alongside this fund, St John manages the AXA Framlington UK Select Opportunities and the UK Mid Cap funds. He serves as co-manager on the AXA Framlington UK Smaller Companies fund too. We're confident he's not overstretching himself though. There's a high degree of research overlap between the four funds and St John benefits from the assistance of co-managers Dan Harlow and Nigel Yates. They’re supported by the rest of AXA's UK Equities investment team. St John 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. Current themes include increased life expectancy, automation and low-carbon economy solutions. Then they identify 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 them 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 sold the fund’s position in greeting card business Moonpig over concerns about the company’s balance sheet strength and sensitivity to the economic cycle.

Culture

The company was formed in the 18th 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 developed an internal research, analysis and rating database, which provides ESG information on thousands of companies, in over 100 countries, and all AXA fund managers and analysts have access to it. The system considers the ratings awarded by a variety of different providers, with the aim to arrive at a more balanced view.

The firm excludes companies involved in controversial weapons, palm oil (those that haven’t achieved ‘sustainable palm oil’ status), soft commodities, coal and tar sands from all its portfolios. The list is widened to include tobacco, defence, violators of the UN Global Compact and companies that achieve the lowest ESG scores in their ESG integrated portfolios (around 90% of AUM). The firm provides a good level of transparency on their voting and engagement work, which includes an annual Active Ownership and Stewardship report, and produces around one responsible-investment related article per month.

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%. This means you’ll pay an ongoing charge of 0.59%. The HL platform fee of up to 0.45% a year also applies.

Performance

St John has repeatedly shown a talent for investing in companies with outstanding long-term growth potential. But our analysis suggests his stock picking has been particularly good amongst small and medium-sized companies. This is one of the main reasons he's significantly outperformed the broader UK stock market over his fund management career, though past performance is not a guide to the future.

St John tries to limit losses during turbulent times. The fund then has less ground to make up when markets improve. Our analysis suggests his focus on high-quality companies has helped shelter investors' money to a degree when markets have fallen but we expect the fund to lag the broader market when it rises quickly. However more recently this hasn’t been the case.

Over the last year the fund has underperformed, lagging the FTSE All Share’s return by 17.74%. The manager’s growth-focused investment style has fallen out of favour with investors in an environment where value stocks have performed better. The fund invests more than the index in sectors like technology and this hasn’t helped for performance. The fund also invests more than the FTSE All Share index in medium and smaller sized companies which haven’t held up as well as larger companies. At a stock level, the fund’s investment in media company Future plc has been among the largest detractors from performance.

Without doubt, this has been a difficult year for the fund, however we remain encouraged that the manager is staying true to his investment process, which has delivered strong returns over the long term. All fund managers endure periods of weaker returns and we continue to have conviction in Chris St John as manager of the fund.

Past performance is not a guide to the future. Source: Lipper IM to 30/11/2022.

More about AXA WF UK Equity fund including charges

AXA WF UK Equity fund Key Investor Information