AXA WF Framlington UK: February 2022 fund update

• Chris St John is an experienced, well-incentivised fund manager
• He looks for themes that are likely to drive stock market growth over the long term and invests in companies with the potential to benefit
• The manager has a great long-term track record, boosted by his ability to select companies with outstanding prospects
• The fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The AXA WF Framlington UK fund could be a good addition to a long-term growth portfolio. The fund invests in UK companies of all sizes but has more in higher-risk small and medium-sized companies than some other funds in the IA UK All Companies sector, so could work well with those focused on more established, larger companies. The manager's focus on high-quality companies means it could also sit well alongside a fund that invests 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 Framlington UK 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 managers look for themes that are likely to drive stock market growth over the long term and think 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 tend 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.

Current investments include home furnishings retailer Dunelm. The company offers in-store and online purchasing, with a product portfolio that is largely own brand and sourced from long-term committed suppliers. St John and his team believe the company has the potential to significantly grow its share of the UK furniture market as the Covid-19 pandemic has made it more difficult for smaller firms to compete.

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.

AXA has significantly improved its approach to incorporating Environmental, Social and Governance (ESG) analysis in recent years. The firm employs several ESG-focused investment professionals, split between a central team and the various investment teams. All fund managers have access to an internal ESG research, analysis and ratings database, and must justify investments in companies that aren’t deemed to be taking their ESG obligations seriously. All AXA funds exclude companies with significant involvement in tobacco, controversial weapons, and coal.

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

Cost

This fund is available at an annual ongoing charge of 0.59%, which includes an HL saving of 0.18%. The usual ongoing charge is 0.77%. We think this is attractive compared to other funds in the sector. The HL platform charge (up to 0.45% per year) also applies.

Performance

Chris 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. The fund will fall as well as rise in value, so you could get back less that you invest.

Chris 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.

The fund rose 9.51%* over the past year but underperformed the broader UK stock market by 9.39%. This was mainly down to the manager’s growth-focused investment style going out of favour. Instead, investors preferred businesses that are expected to do better during an economic recovery. Oil & gas companies, for instance, performed extremely well over the year, and the fund’s lack of exposure held back performance.

One of the best performers was media business Future. The company specialises in taking print-based media publications and digitising the content to allow it to reach more people. It owns brands including Country Life, Marie Claire and Homes & Gardens. Weaker performers included online fashion retailer boohoo. The company faced a variety of challenges, including global supply chain issues, greater competition and louder calls for sustainability.

Past performance is not a guide to the future. Source: *Lipper IM to 31/01/2022.

Find out more about AXA WF Framlington UK including charges

AXA WF Framlington UK Key investor information