Axa fram uk mid cap fund harrowgate - sept 13

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Axa fram uk mid cap fund harrowgate - sept 13

  1. 1. Unlocking the potential of UK mid cap companies This communication is for investment professionals only and must not be relied upon by retail clients. Circulation must be restricted accordingly. Chris St John, Fund Manager of the AXA Framlington UK Mid Cap Fund 17582/CR50548
  2. 2. Biography  Chris joined AXA Framlington in 2005. He is the lead manager for the AXA Framlington UK Mid Cap Fund and several pension funds.  He started his career at PricewaterhouseCoopers in 1995 as part of the London Middle Market Business Advisory Service. After a short period in the Corporate and International Tax department, he moved to Corporate Finance. He subsequently joined ISIS (which later became Foreign & Colonial) where he progressed from an equity analyst onto becoming a lead Fund Manager on four institutional FTSE Small Cap Funds. In 2003, he was promoted to lead Fund Manager of the UK Small Cap retail Funds.  Chris graduated from Durham University with an honours degree in Philosophy and Psychology in 1995. He qualified as a Chartered Accountant in 1998. Chris St John Fund Manager Source: AXA IM as at 31/06/2013. 1 17582/CR50548
  3. 3. AXA Framlington UK Mid Cap Fund performance Source: Graph: Lipper as at 31/07/2013, Net income, Bid to Bid, net fees. Fund, IMA & Quartile: Lipper, Net Income, Bid to Bid. Net Fees. *AXA Framlington UK Mid Cap Fund Institutional Share Class. **Rank vs IMA UK All Companies. Z institutional share class used in the IMA peer group. Inception date 04/03/2011. NB: Past performance is not a guide to future performance. Strong outperformance relative to comparative benchmark Performance since inception 04/03/2011 (net) 2 17582/CR50800 YTD 1yr Since inception AXA Framlington UK Mid Cap Net* 30.12 45.88 57.70 FTSE 250 Mid (ex IT) TR 23.61 40.25 39.75 Net performance relative to comparative benchmark 6.51 5.64 17.95 Rank** 7/268 16/267 8/260 Quartile 1 1 1 0 50 100 150 200 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 AXA Framlington UK Mid Cap Z Acc IMA UK All Companies
  4. 4. FTSE 250 Index – Strong performance … this is an asset class worth considering Source: Lipper, percentage growth total return. Data shown from 31/12/1999 to 31/07/2013. NB: Past performance is not a guide to future performance. 3 17582/CR50800 0 50 100 150 200 250 300 350 400 450 500 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 FTSE All-Share TR FTSE 250 Mid (X It) TR MSCI World TR GBP FTSE A British Govt All Stocks TR 207.87 FTSE All-Share TR 448.66 FTSE 250 Mid (X It) TR 210.86 MSCI World TR GBP 232.80 FTSE A British Govt All Stocks TR
  5. 5. 1970 1971 1972 1973 1974 1975 1976 19771978 1979 1980 19811982 1983 19841985 1986 1987 19881989 1990 1991 1992 1993 199419951996 1997 1998 1999 2000 2001 2002 R 2 = 0.7525 -5 0 5 10 15 20 4 6 8 10 12 14 16 18 20 22 24 26 28 Starting period PER (x) Average annual 10-year real 4 6 8 10 12 14 16 18 20 22 24 26 28 20 15 10 5 0 -5 Averageannual10-yearrealreturns(%) Starting period P/E Equity valuation remains attractive relative to history Source: Oriel Securities, January 2013. NB: Past performance is not a guide to future performance. 1974 1999 4 17582/CR50548
  6. 6. Why might this be?  Dynamic changing index  Market cap range £275m to £4.35bn  Market leaders – Global – Domestic  Less intense regulatory spotlight  Acquisition targets  Investors underestimate change and earnings growth  Strong balance sheets/beneficiaries of Cap ex Potential long term attractions 5 17582/CR50548
  7. 7. Valuations attractive FTSE 250 ex IT UK PE 12M Forward earnings 1998–2013 Source: Citigroup as at 28/08/2013. NB: Past performance is not a guide to future performance. Valuations supportive of continued absolute returns 6 17582/CR50800 6 8 10 12 14 16 18 20 22 Aug-98 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 FTSE 250 12m fwd PE Average
  8. 8. 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Net Upgrades/(Downgrades) FTSE 250 Realistic earnings expectations  24 months of net downgrades  2012/2013 IBES Consensus PAT* growth of 3.8% seems reasonable (2013//2014 PAT Growth 7.1%)  2012/2013 IBES Consensus median PAT growth of 7% Bottom up earnings forecasts are realistic in many cases Source: Chart: Citigroup as at 31/07/2013. *Profit after Tax. 7 17582/CR50800
  9. 9. Diversification – geography Source: FactSet as at 31/01/2013. Split of sales generated by FTSE 250 companies UK 47% North America 14% Europe 17% Rest of the World 22% Access to both domestic and global growth opportunities 8 17582/CR50548
  10. 10. 0 5 10 15 20 25 30 Industrials Other Financials Consumer Services Technology Utilities Consumer Goods Telecoms Basic Materials HealthCare Banks Oil&Gas FTSE 250xIT FTSE 100 Diversification – sector Source: AXA IM as at 31/07/2013. Sector breakdown of FTSE 250 ex IT vs FTSE 100 FTSE 250 ex IT % FTSE 100 % Largest stock weight 1.52 8.23 Top ten stocks 13.43 46.71 A broad industry exposure 9 17582/CR50800
  11. 11. 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 10 CapEx as % of Sales (LHS) Net Debt/EBITDA (RHS) Strong balance sheets/beneficiaries of CapEx Source: Citigroup as at 27/06/2013.  Cash piles have grown during downturn presenting value accretive – organic growth – dividend growth – share buy backs – Special dividends (Spirax Sarco, ITV, Elementis, MoneySupermarket, Victrex) Low net debt and depressed capex bode well for long term estimated 10 17582/CR50548
  12. 12. M&A targets – FTSE 250 Earnings yield vs UK BBB Corp bond yield Source: Citigroup as at 27/08/2013. M&A, CapEx, buy backs, dividends supported 11 17582/CR50800 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Aug 98 Aug 99 Aug 00 Aug 01 Aug 02 Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Aug 11 Aug 12 Aug 13 FTSE 250 Earnings Yield UK BBB Corp Bond Yield
  13. 13. There is always opportunity Number of stocks in the FTSE 250 with total shareholder return in excess of 20% between 2000 and 2013 73 30 17 147 102 119 131 40 10 153 124 25 129 68 0 20 40 60 80 100 120 140 160 180 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD No.ofcompanies Source: AXA IM as at 26/06/2013. Stockpicking paradise 12 17582/CR50548
  14. 14. AXA Framlington UK Mid Cap Unit Trust Name : AXA Framlington UK Mid Cap Fund Fund manager : Chris St John Launch date : 4 March 2011 Fund size : £23.3m Number of holdings : 72 Fund structure : Unit Trust Management fee : 0.75% (Institutional Class); £100k minimum investment Comparative benchmark : FTSE 250 ex IT (used as a point of reference) Parameters : Unconstrained UK Medium Capitalisation Portfolio Exposure to FTSE 250 ex IT normally no less than 70% Exposure to FTSE 100 normally no more than 15% Typically 60-80 holdings Normally no greater than 4% stock holding size Source: AXA IM as at 31/07/2013. Actively managed UK Mid Cap fund 13 17582/CR50800
  15. 15. Strategy / thematic views – economic tailwind rather than headwind  Supply side constraint  Self help/management change  UK survivorship  Service, service, service  Technological change Essentra Ashtead Sports Direct Spirax-Sarco Rightmove Favour market leading growth companies 14 17582/CR50548
  16. 16. By Industry (%) Source: FactSet as at 31/07/2013. * As at 03/09/2013. Comparative benchmark: FTSE 250 ex IT. AXA Framlington UK Mid Cap Fund Portfolio as at 31/07/2013 Top 10 holdings FTSE 250 weighting = 78.7%* Fund % Ashtead Group plc 2.38 Sports Direct International plc 2.25 Rightmove plc 2.02 Essentra plc 1.95 ITV plc 1.93 Senior plc 1.79 Howden Joinery Group PLC 1.76 St. James's Place Plc 1.66 Travis Perkins plc 1.64 Pace plc 1.53 Oil & Gas 3% Basic Materials 2% Industrials 29% Consumer Goods 3% Health Care 1% Consumer Services 20% Telecom Services 2% Financials 12% Information Technology 7% Utilities 0% Cash 21% 15 17582/CR50800
  17. 17. Conclusion  FTSE 250 attractive asset class with enduring characteristics  Valuation not excessive in context of history  Starting dividend yield of circa 3%  Earnings growth realistic  Global GDP growth supportive of FTSE 250 companies AXA Framlington UK Mid Cap Fund Source: AXA IM as at 30/06/2013. 16 17582/CR50800
  18. 18. Important information 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. 17 17582/CR50548

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