Something for everyone in Axa’s 40

With its multi-expert approach, Axa Investment Managers runs funds covering everything from biotech to Japan – a range that offers its share of successes and difficulties, writes Sarah Coles.

Axa Investment Managers was founded in 1994. It acquired Framlington in 2005, establishing the Axa Framlington brand, and has 3,000 employees in 22 countries. At the end of 2008 the group had assets under management of £426.6 billion.

Axa Investment Managers started life in 1994, acquired Framlington in 2005 and is the tenth largest asset manager active in Europe, with assets under management of £426.6 billion at the end of 2008.

The firm operates according to what it calls a multi-expert model, with qualitative equity management under Axa Framlington, quantitative management by Axa Rosenberg, and broad equity and fixed income under the Axa brand. It is a something-for-everyone kind of approach that means running 40 funds, covering everything from biotech to Japan.

But ask anyone about the range and one fund will spring to mind above all others: Nigel Thomas’s Axa Framlington UK Select Opportunities. It is a stand-out long-term performer within the range, which gained much in the past year from Thomas’s foresight to have a zero rating in banks going into the financial crisis.

Thomas himself has a committed following. Darius McDermott, the managing director of Chelsea Financial Services says: “Nigel has been on our buy list for more than 10 years. He is one of those experienced fund managers you would trust with your own money.” And as a result, the fund is four times the size of any other Axa fund in the retail space.

This outstanding success is, unfortunately, not the only story at Axa. There are funds suffering troubled times, including those run by another big star of the group, George Luckraft. He is the lead fund manager of the Axa Framlington Equity Income, Axa Framlington Managed Income and Axa Framlington Monthly Income funds, the last of which delivered fourth-quartile performance over one and three years and was bottom of its sector over the past 12 months.

Rob Bailey, the head of UK Sales at Axa IM, says: “George has quite an exposure to small companies and stuck to his knitting during the turmoil, recognising that a lot of stocks in the portfolio were simply too cheap.”

This performance means the fund made its way into Chelsea Financial Services’ Relegation Zone. However, McDermott says: “Nine times out of 10, funds in that zone are tagged as a switch, but we’re not doing that with Luckraft, in recognition of the fact a major part of this performance was due to his holding in smaller companies.” The last three months has seen a sharp rebound, and McDermott says: “There is an argument that if small companies are about to add value, it would be the wrong time to sell.”

In fact, F&C’s Multi Manager team reintroduced the Axa Framlington Equity Income fund in August. Paul Carne, one of the F&C managers, says: “Last year’s decision to exit the fund was not based on any concerns over George Luckraft’s capabilities and was simply indicative of over-exposure to smaller and medium-sized company stocks at a time when our investment thesis was that larger companies would perform better.”

He adds that a move back into the fund reflects the belief that performance in future will focus less on sectors and more on winners and losers in each sector, where stock-picking abilities will be rewarded.

Luckraft is not the only manager working through difficulties. McDermott has six other Axa IM funds in his Relegation Zone, all of which are marked as a switch, including Axa Rosenberg European and Axa Rosenberg Global (Axa’s second-biggest fund). The Rosenberg model is quantitative, pulling the business apart, valuing each component and adding them toge- ther to arrive at a fair value.

Bailey says: “The process has been proven to work well over a sustained period and is well recognised in the institutional market.” But the approach clearly struggled at the end of 2008 and beginning of 2009 when sentiment and forced selling were bigger ­drivers of behaviour than fundamentals. He does not rule out reassessment of the model over time but is optimistic that the return to form over the past three months is a sign of things to come.

The fixed income range has also faced its share of challenges. Theo Zemek had the task of turning the fortunes of this part of the group around when she took over the role of global head of fixed income at the end of 2007.

Since then performance has still struggled, with many funds posting fourth-quartile performance over the past year.

However, Bailey explains: “She was faced with making changes in the midst of crisis. The lack of liquidity often meant selling way below the screen price, so Theo is working through that process.” And the industry is hopeful she will be successful. McDermott says: “Theo Zemek was a strategic appointment. I expect that to make a difference.”

One star who has fared relatively well through the financial crisis, particularly with his Global fund, is Jim Stride, who has 25 years at the helm of the Distribution fund, and is currently running £10.5 billion in the distribution products.

Mark Dampier, the head of research at Hargreaves Lansdown, says: “Jim Stride has always been solid and has strong support from IFAs. He does a cracking job in this area.”

The distribution proposition sits well with a broad ­insurance company platform, and this strong insurance parent is a big strength of the group. Bailey says: “In the last year, while some groups faced questions of their financial strength, I haven’t had to deal with anyone who was worried that Axa wouldn’t be there next year.”

Big names like Thomas, Luckraft, Zemek and Stride are clearly vital to the business, but there are also rising stars. McDermott says: “One on our radar is Stephen Kelly, who runs the American Growth fund. His long-term track record is good and he has been second quartile over five years.”

Bailey also highlights Jamie Hooper, the manager of the UK Growth fund, Chisako Hardie, manager of Japanese Smaller Companies and Mark Tinker, manager of Global Opportunities.

The group is working to support these managers. It went through a restructuring over the summer to bring the active equity funds under one umbrella. Bailey says: “It brought together the qualitative equity parts of the business under one brand, making it a more rounded proposition, and to a certain extent formalising what was already happening in terms of the way people work together.”

He emphasises that the restructuring will not affect Luckraft or Thomas and the way they operate but will provide more resources for managers, particularly in Europe. The most recent change was the appointment of Mark Beverage as the new global head of Axa Framlington. He ar­rived on September 3, so has had little opportunity to make his mark, but Bailey says he will be “looking at the organisation and looking for opportunities to develop and grow”.

The multi-expert approach means there are plenty of opportunities to be exploited across the globe, no matter what the challenges of the market. Not every fund is going to be a star performer, but McDermott points out that this is all part of doing business as a something-for-everyone kind of manager. “When you have a lot of funds you have a few appearing in the Relegation Zone from time to time. It’s not necessarily anything to get too heated about.”