• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
17575  - axa fram uk smaller cos - (to july 13)
 

17575 - axa fram uk smaller cos - (to july 13)

on

  • 296 views

 

Statistics

Views

Total Views
296
Views on SlideShare
254
Embed Views
42

Actions

Likes
0
Downloads
1
Comments
0

3 Embeds 42

http://www.citywire.co.uk 17
http://citywire.co.uk 15
http://shakespeare 10

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    17575  - axa fram uk smaller cos - (to july 13) 17575 - axa fram uk smaller cos - (to july 13) Presentation Transcript

    • September 2013 Henry Lowson - Fund Manager AXA Framlington UK Smaller Companies Fund 17575/CR50793 This communication is for professional advisers only and must not be relied upon by retail clients. Circulation must be restricted accordingly.
    • The case for small cap investing 1 17575/CR50793
    • Attractions of small cap  Lack of research – undervalued securities – market inefficiencies can be exploited  More entrepreneurial/motivated management  Large investment universe  Diversification – different sector profile to FTSE All-Share Index 2 17575/CR50793 Asset class for superior long term returns?
    • FTSE Small Cap ex IT sales split 3 17575/CR50793 Source: FactSet as at 31/07/2013. United Kingdom Europe United States Rest of the World Access to both domestic and global opportunities
    • FTSE Small Cap ex IT – sector breakdown 4 17575/CR50793 0 5 10 15 20 25 30 35 40 Industrials Other Financials Consumer Services Technology Utilities Consumer Goods Telecoms Basic Materials Health Care Banks Oil & Gas FTSE Small CAP ex IT FTSE All Share Source: FactSet as at 31/07/2013. A broad industry exposure
    • FTSE Small Cap ex IT performance 5 17575/CR50793 Source: FactSet as at 31/07/2013. 50 70 90 110 130 150 170 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 FTSE Small Cap ex IT FTSE All-SHare FTSE Actuaries Govt Securities UK Gilts All Stocks MSCI World
    • P/E Ratios by market cap 6 17575/CR50793 Source: FactSet as at 31/07/2013. 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 60,975 23,874 10,357 6,296 4,550 3,584 2,995 2,306 1,980 1,622 1,338 1,188 1,043 904 800 706 638 561 473 405 338 279 225 189 167 137 103 72 Average12mForwardP/E Average free float (£m) FTSE 100 FTSE 250 FTSE Small Cap
    • FTSE Small Cap ex IT 1m Forward P/E 7 17575/CR50793 Source: Citigroup as at 20/08/2013. 0 10 20 30 40 50 60 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 FTSE SMALL CAP - 12MTH FWD P/E RTIO Average FTSE Small Cap
    • FTSE Small Cap ex IT Earnings Revisions 8 17575/CR50793 Source: Peel Hunt as at 20/08/2013.
    • Current mandate and performance 17575/CR50793
    • UK Small Cap team 10 17575/CR50793 Experienced and dedicated UK small cap resource  In May 2012 Henry Lowson was promoted to lead fund manager of the AXA Framlington UK Smaller Companies Fund. He is also responsible for the management of the AIM Inheritance Tax Portfolio Service.  Henry is a CFA Charterholder and a Member of the Chartered Institute for Securities and Investment. He graduated from Edinburgh University in 2004 with a MA (Hons) degree in Economics and Geography.  Chris St John joined AXA Framlington in 2005. He is the lead manager for the AXA Framlington UK Mid Cap Fund and several pension funds  Chris graduated from Durham University with an honours degree in Philosophy and Psychology in 1995. He qualified as a Chartered Accountant in 1998 Source: AXA IM as at 31/12/2012.
    • AXA Framlington UK Smaller Companies Name : AXA Framlington UK Smaller Companies Fund Fund manager : Henry Lowson Launch date : 27/04/2001 Fund size : £58.8m Number of holdings : 83 Fund structure : Unit Trust Management fee : 0.75% (Institutional Class); £100k minimum investment Comparative benchmark : FTSE Small Cap ex IT (used as a point of reference) Parameters : Unconstrained UK Small Capitalisation Portfolio Typically 70-90 holdings Normally no greater than 3% stock holding size Source: AXA IM as at 31/07/2013. Actively managed UK Small Cap fund 11 17575/CR50793
    • Performance 12 17575/CR50793 Performance – 5 years to 31/07/2013 Source: AXA IM as at 31/07/2013. Basis: Bid to Bid, Net income reinvested, net fees. *Date at which Chris St John repositioned the Fund. NB: Past performance is not a guide to future performance. 0 50 100 150 200 250 300 350 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 AXA Framlington UK Smaller Companies IMA UK Smaller Companies 1Y 3Y 31/12/2008*- 31/07/2013 AXA Framlington UK Smaller Companies 33.8 85.0 188.9 FTSE Small Cap exIT 48.5 68.8 165.1 IMA UK Smaller Companies 31.5 62.8 158.1 Ranking 30/52 6/51 11/51 Quartile 3 1 1
    • 13 17575/CR50793 Growth at a reasonable price Fundamentally driven process Experienced management team  Emphasis on companies with secular growth characteristics  Stock selection using a qualitative and quantitative approach  Portfolio construction discipline to improve risk-adjusted returns  Team led by Henry Lowson who has over 9 years’ market experience  Supported by experienced UK Equity Investment Team  Insights from other specialist teams AXA Framlington UK Small Cap Strategy Key features  Superior long-term growth prospects  Good quality management and fundamentals  Attractive valuation Source: AXA IM as at 31/07/2013.
    • Team UK MID/SMALL CAP MULTI-CAP UK FUND MANAGERS SECTOR INVESTMENT TEAM INTERNATIONAL INVESTMENT TEAM UK assets under management 31/07/2013 Value £ Composite weight* FTSE 100 4,782,997,622.75 58.23 FTSE 250 2,376,195,912.59 28.93 FTSE Small Cap 443,602,524.11 5.40 FTSE Fledgling 26,206,219.45 0.32 FTSE AIM 584,421,209.97 7.12 TOTAL 8,213,423,488.86 100.00 Source: AXA IM as at 31/07/2013. FM years relate to experience. *Composite consists of the UK Equity portion for 30 funds and excludes cash. Henry Lowson UK Small Cap 9 years Chris St John UK Mid/Small Cap 14 years Nigel Thomas UK Growth 34 years Jamie Hooper UK Growth 18 years Richard Peirson Balanced 41 years George Luckraft UK Income 33 years Jamie Forbes-Wilson UK Income 17 years Rupert Hunter Private Client 28 years Michael Firth Private Client 28 years Jon Gould Private Client 4 years Jeremy Gleeson Technology 15 years Susan Sternglass Noble Financials 27 years Linden Thomson Biotech 9 years Mark Tinker Global 26 years Chisako Hardie Japan 22 years Stephen Kelly US 22 years Gemma Game Healthcare 112years Dan Harlow US 12 years Julian Thompson Emerging Markets 20 years 14 17575/CR50793
    • Investment process 17575/CR50793
    • AXA Framlington UK Small Cap Fund Investment process 16 17575/CR50793 Stock SelectionTop-down sector/theme Portfolio Construction1 2 3 4 Risk Management Portfolio Review  Micro/macro economic drivers  Constantly reviewed  Management and industry feedback Organic growth Pricing power High barriers to entry Customer diversification Appropriate funding structure Valuation  Individual stock weightings resulting from – level of conviction/expected upside – Normally no greater than 3% size – Market capitalisation spread – Sector diversification – Economic scenario/market environment Portfolio monitored and reviewed constantly with respect to risk exposures and client objectives  Daily monitoring of portfolio active exposures, and risk metrics  Weekly Portfolio Review AXA Framlington Team meetings 75 to 95 stocks Source: AXA IM as at 31/12/2012.
    • 1. Top-down sector theme analysis Strategy/thematic views Emerging Markets’ development Power efficiency and emission reduction Health & Safety Growth in data / internet / mobile communications Increasing capital efficiency Beneficiaries of credit boom US housing recovery 17 17575/CR50793 Economic tailwinds rather than headwinds Devro / Synergy Oxford Instruments / Dialight Porvair NCC / IOMART / ANITE RPC / Lavendon Booker Keller / Tyman
    • 2. Bottom-up analysis Combining a qualitative & quantitative fundamental approach 18 17575/CR50793 Assessment of management’s ability to guard capital whilst capitalising on market position  Management track record  Organic growth  Pricing power  High barriers to entry  Customer diversification  Appropriate funding structure Drivers for a quality portfolio Focus on companies whose upside has not yet been priced  Earnings yield and growth  Superior dividend growth  Free cashflow  Return on capital With a discipline towards absolute valuationTargeting quality growth companies….
    • Fund positioning 17575/CR50793
    • Top 20 holdings 20 17575/CR50793 Market value % % of portfolio Market value % % of portfolio CLS Holdings PLC 1,632,000 2.7 Spirit Pub Company PLC 1,046,250 1.8 Tyman PLC 1,511,250 2.5 Elementis PLC 1,002,400 1.7 St. Modwen Properties PLC 1,343,425 2.3 Booker Group PLC 989,250 1.7 RPC Group PLC 1,314,450 2.2 Dunelm Group PLC 984,000 1.7 RWS Holdings PLC 1,207,000 2.0 Hyder Consulting PLC 942,000 1.6 Entertainment One Ltd. 1,161,780 2.0 Innovation Group PLC 934,375 1.6 Paragon Group of Companies PLC 1,125,250 1.9 Restaurant Group PLC 926,625 1.6 Keller Group PLC 1,104,000 1.9 Aveva Group PLC 901,500 1.5 Devro PLC 1,093,750 1.8 Brammer PLC 888,188 1.5 Oxford Instruments PLC 1,064,250 1.8 Porvair PLC 883,200 1.5 22,054,943 37.1 Source: FactSet using TBR Methodology, end of day prices as at 31/07/2013.
    • AXA Framlington UK Smaller Companies Relative sector positions 21 17575/CR50793 Source: FactSet as at 31/07/2013. Largest overweight sectors Largest underweight sectors Sector Variation in ending weight % Sector Variation in ending weight % Software & Computer Services 7.73 Real Estate -7.15 General Industrials 4.88 Industrial Transportation -3.20 Financial Services 3.50 General Retailers -3.07 Food & Drug Retailers 3.14 Household Goods & Home Construction -2.87 Construction & Materials 2.44 Mining -2.85
    • Market capitalisation spread of fund and UK small cap indices 22 17575/CR50793 Fund remains focused on genuine UK small cap opportunities Source: FactSet and HGSC as at 31/07/2013. 1.0 1.7 4.6 6.4 12.7 6.0 1.8 10.4 14.2 7.8 17.0 7.8 8.1 0.5 0.0 0.0 2.0 3.2 7.3 11.6 12.3 15.9 23.4 13.3 10.9 0.0 0.0 0.00.3 0.5 0.8 0.6 1.7 2.7 2.2 2.6 5.1 5.0 17.9 17.1 13.1 14.2 7.6 6.5 2.1 0.0 0.0 0 5 10 15 20 25 30 0.0 - 25.0 25.0 - 50.0 50.0 - 75.0 75.0 - 100.0 100.0 - 150.0 150.0 - 200.0 200.0 - 250.0 250.0 - 300.0 300.0 - 400.0 400.0 - 500.0 500.0 - 750.0 750.0 - 1000.0 1000.0 - 1250.0 1250.0 - 1500.0 1500.0 - 1750.0 1750.0 - 2000.0 2000.0 - 2250.0 > 2250.0 Cash % £m AXA Framlington UK Smaller Companies FTSE Small Cap ex IT NSCI ex IT
    • Market outlook  In our view geopolitical/macro economic uncertainty will create stock market volatility.  Evidence of credit conditions easing for corporates should be positive for company growth plans and potential shareholder returns.  Smaller companies have been an overlooked area of the market in spite of their strong performance in recent years. Recent flows into equities are supportive for markets.  Small Cap valuations continue to look attractive both in a historical context and relative to other asset classes.  Mergers and acquisitions, share buybacks and dividend growth all supportive of Small Cap equities. 23 17575/CR50793
    • Appendix 1: Portfolio Construction 24 17575/CR50793
    • Decision drivers – buy/accumulate  Expectation of positive earnings surprise  Material improvement in broader trading environment  Valuation anomaly (but wary of value traps)  Information advantage born out of company meetings  Management change – re-energising nascent business model 25 17575/CR50793 Absolute return focus
    • Decision drivers – sell/reduce  Material deviation from strategy  Unexpected market/economic development  Evidence of management inconsistency/dishonesty  Unexplained deterioration in profitability/cash generation  Extreme relative outperformance 26 17575/CR50793 Opportunity cost of capital is paramount
    • Portfolio construction 27 17575/CR50793  Unconstrained investment approach within risk controlled environment – Benchmark aware rather than benchmark driven – Continuous checks for any systematic biases via risk models and mitigated if unintended and unwanted  High active share – aim to diversify stock risk and ensure stock selection is principal alpha generator – Diversified portfolio structure: typically 80 – 100 stocks – Average holding size c.0.5-2.0% at cost - normally no greater than 3%  Stock weightings will reflect individual risk/return profile, valuation, upside to fair value, near-term catalysts  Integrated risk management with continuous risk checks for systematic biases – Portfolio construction executed by investment team with advice from Portfolio Engineer Principles Portfolio structure Source: AXA IM as at 31/072013. 0 10 20 30 40 50 0.5 - 1% 1 - 1.5% 1.5% - 2% 2 - 2.5% 2.5 - 3% Below 0.5%
    • Illustrative drivers of investment weighting 28 17575/CR50793 Holding size correlates to risk reward Low liquidity Asset backed Upside conviction Track record of delivery Visible earnings stream Proven management Cashflow stability Organic growth Secular growth Larger market capitalisation High growth Low visibility Unknown management Pre-profitable business Increasing weight and conviction
    • Holding size vs market capitalisation 29 17575/CR50793 UK Smaller Companies Unit Trust Stock Market Cap vs Fund Weight 31 July 2013 Source: AXA IM as at 31/07/2013. 0 500 1,000 1,500 2,000 2,500 0.0 0.5 1.0 1.5 2.0 2.5 MarketCapGBPMillions Fund Weight %
    • AXA Framlington UK Smaller Companies – turnover analysis 30 17575/CR50793 Source: AXA IM as at 31/07/2013. * * Target holding period typically 3-5 years 0 5 10 15 20 25 30 35 40 0 2 4 6 8 10 12 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 1M Turnover 12m Average of 1M Turnover ann
    • Appendix 2: Case Studies 31 17575/CR50793
    • Case study (buy): Porvair 32 17575/CR50793 Description  World leader in filtration and separation technology Strategic attraction of investment  Reorientation of business towards higher growth regulated market segments and greater levels of IP and design in its products Bottom-up analysis  A global leader in microfiltration and metals filtration  Solid base of long term recurring revenues giving good visibility due the consumable/replacement nature of their product  High barriers to entry as their filters are often accredited, bespoke and designed into their customer’s product  Supportive regulatory backdrop in their end markets.  Strong cash generation has led to an improved balance sheet, giving financial flexibility  Opportunity to materially improve margins from 7% to 10% Valuation  Conservative earnings forecasts of over 10% growth p.a  P/E of 12.5x at cost, with a 3% dividend yield – attractive in absolute terms but also relative to US peer, Pall Corp  Free cashflow yield over 10% Source: AXA IM as at 31/12/2012.
    • Case study (buy): Porvair 33 17575/CR50793 Decision driver  Recently won multi-million dollar contracts in aviation and gasification with significant global clients and order book at record levels  Meeting with management in January 2012  Broker informed us of a line of stock on offer Portfolio sizing  Decision to take 0.5% holding due to size, liquidity and availability of stock (10/01/2012)  Holding now over 1% of fund Source: AXA IM as at 31/12/2012. 0.30 0.50 0.70 0.90 1.10 1.30 1.50 1.70 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Porvair PLC
    • Case study (buy): Keller Group 34 17575/CR50793 Description  Keller is an international ground engineering specialist, providing solutions and services relating to ground behaviour to the construction industry (ie foundation support, ground retention, underground excavation) Strategic attraction of investment  Capitalise on improving global economic conditions and reindustrialisation of the US Bottom-up analysis  Strong management with Board Chairman, Roy Franklin (ex Paladin Resources) and Justin Atkinson, CEO  Market leader  Balance sheet financing position ahead of market expectations  Order book at all time high  Contract wins underwrite forecasts  Capital requirement, scale and expertise provide barriers to entry Valuation  Trough multiple with operational gearing (0.5% move up in EBITDA margins = 17% uplift in profitability)  22.8p dividend, 7% yield at first purchase Source: AXA IM as at 31/12/2012.
    • Case study (buy): Keller Group 35 17575/CR50793 Decision driver  13/01/12 company wins largest contract ever in Australia for Wheatstone LNG Plant - £120m  13/01/12 met company management at short notice  Contract momentum building, US prices stabilised, US construction market turning Portfolio sizing  1% holding taken initially (316p initial purchase – 17/01/2012)  Subsequently added to holding (400p final purchase)  Holding now 1.5% of fund 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Keller Group PLC Source: AXA IM as at 31/12/2012.
    • Case study (sell): Severfield Rowen 36 17575/CR50793 Description  Severfield-Rowen is a structural steelwork fabricator. It designs, fabricates and erects steel structures and principally operates in the UK and India Strategic attraction of investment  Market leader in UK steel fabrication with an emerging growth opportunity in the Indian market Bottom-up analysis  Cyclical recovery in the UK Construction market, with secular growth of steel construction in India (concrete to steel substitution opportunity)  Building market share to 20% through downturn as competitors have failed  Potential to rebuild margins and profitability to over 15%  Experienced management team with long tenure Valuation  EV/EBITDA for 2012 of c. 11x but forecast earnings growth of 50% at risk  Free cash flow yield of only 2% and return on capital employed forecast to be 14% in contrast to over 50% in 2009  Dividend yield now only 2.5% following a cut to the dividend in 2011 Source: AXA IM as at 31/12/2012.
    • Case study (sell): Severfield Rowan 37 17575/CR50793 Decision Driver  Earnings at risk as UK Construction market remains challenging  Pricing pressure as competition in private sector chase work at any price. Therefore margins under pressure  Pipeline of new work deteriorating  Cash flow deteriorating and gearing increasing putting the balance sheet at risk Portfolio sizing  Decision to sell 100% of holding (May 2012) Source: AXA IM as at 31/12/2012. 0.30 0.80 1.30 1.80 2.30 2.80 3.30 3.80 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Severfield-Rowen PLC
    • Important notice This communication is intended for Investment Professional use only and should not be relied upon by retail clients. Circulation must be restricted accordingly. Any reproduction of this information, in whole or in part, is prohibited. This communication does not constitute an offer to sell or buy any units in the Fund. Information relating to investments is based on research and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other members of the AXA Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no responsibility is accepted for errors and omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter into any investment transactions. This communication should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA investment service or product and is provided to you for information purposes only. The views expressed do not constitute investment advice and do not necessarily represent the views of any company within the AXA Investment Managers Group and may be subject to change without notice. No representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Information relating to investments may have been based on research and analysis undertaken or procured by AXA Framlington for its own purposes and may have been made available to other expertises within the AXA Investment Managers Group, who in turn may have acted upon it. Information in this document may be updated from time to time and may vary from previous or future published versions of this document. Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk. The price of units and the income from them can go down as well as up and investors may not get back the amount originally invested. An initial charge is usually made when you purchase units. Your investment should be for the medium to long term i.e. typically 5-10 years. Changes in exchange rates will affect the value of trust investments overseas. AXA Framlington is an expertise of AXA Investment Managers UK Limited. Issued by AXA Investment Managers UK Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No: 01431068 Registered Office: 7 Newgate Street, London EC1A 7NX. Telephone calls may be recorded for quality assurance purposes. 38 17575/CR50793