The likes of Richard Buxton’s switch to Old Mutual caused his Schroder UK Alpha Plus fund to shrink by close to £2bn, while Neil Woodford’s well publicised departure from Invesco Perpetual has meant his successor, Mark Barnett, has had to deal with steady outflows from his two new income funds over the past few months.
It shows that not only do investors like their star managers, but they also don’t like to be surprised. AXA IM has clearly taken note of that.
The group has already forewarned that FE Alpha Manager Nigel Thomas, who has been in charge of the £4.3bn UK Select Opportunities fund since September 2002 and has run portfolios since the 1980s, cannot run money forever and that Chris St John is in line to replace him.AXA stresses that Thomas has no imminent plans to retire.
St John is support manager on the portfolio and currently runs the AXA Framlington UK Mid Cap fund.
Thomas (pictured) has a strong track record as manager of the fund and Ben Willis, head of research at Whitechurch, says he has fully justified the amount of assets he has attracted.
According to FE Analytics, the fund has been a top decile performer in the competitive IMA UK All Companies sector since Thomas has been at the helm with returns of 271.18 per cent, beating its benchmark – the FTSE All Share – by 115.19 percentage points.
Performance of fund vs sector and index since Sep 2002
Source: FE Analytics
The fund has also beaten the sector in all but one of the last 10 calendar years and its benchmark in all but two.
While Willis says fund groups are always put into difficult positions when one of their key individuals is reaching the end of their career, he applauds AXA IM for alerting investors early.
“Nigel has had some skin in the game for a long time now and I think it is quite mature of AXA to alert unit holders,” Willis said.
“They are hoping to safe-guard assets but what they have done is right. It seems that Nigel will still be running the fund for a few years and that Chris St John will be underneath him so that he can learn from him and hopefully continue the good work.”
“That is a big ask, of course, because that fund has been a long-term core holding for a lot of investors for a while now. What is particularly impressive is that Thomas, unlike many others, has been able to adapt his process as the fund has grown and he has still been able to outperform.”
Speaking exclusively to FE Trustnet, St John says he is happy with the succession plan that is in place and while he admits it raises his profile, he is quick to point out to investors that Thomas will not be leaving the fund anytime soon.
“Nigel is fully committed to the fund but the business has to have a strategy in place for when, at some point, he hands over the fund. I want to point out that he has no plans to retire at the moment, however,” St John (pictured) said.
St John says that while there are subtle differences between their two processes, they run money in much the same way so investors can expect a smooth transition when it does eventually happen.
“Nigel and I have worked together since 2005 and we are part of a wider UK multi cap team. My investment process is very similar to his, that’s probably why I was chosen as support manager on the fund.” “We are growth investors, but specifically GARP (Growth at a Reasonable Price) investors. I believe valuation does play a part - over an economic cycle a stocks risk-return has to be attractive. Nevertheless, I believe the real value in equities comes from the compounding effect of profit growth.”
“This investment style means that when we are in an environment where share prices are distressed and everyone wants value, I would expect to not perform as well.”
“We are both long-term holders of companies and I think the stock market is too short-term and react to events that I believe are just ‘noise’. My investment horizon is three to five years, but ideally I would like to hold stocks for a lot longer than that.”
St John launched the four crown-rated AXA Framlington UK Mid Cap fund in March 2011 and has since performed well.
According to FE Analytics, the £80m fund has been the fourth best performing portfolio in the IMA UK All Companies sector over that time with returns of 61.1 per cent and, more importantly, it has beaten its FTSE 250 ex IT benchmark by more than 20 percentage points.
Performance of fund versus sector and index since Mar 2011
Source: FE Analytics
The fund beat the benchmark in 2012 and 2013 and is also up against the index – despite its losses of 6 per cent – during this year’s difficult market.
The fund also fell less than its benchmark during the nine months he was in charge in 2011; which was a time when the market dropped.
Source: FE Analytics
St John attributes that outperformance in falling markets to his growth style and because, like Thomas, he doesn’t try to time the market.
At the moment, for instance, has been using the falls over the last few days to add to some of his holdings that he feels now look particularly attractive – such as RPC on a P/E of 10 times.
Nevertheless, with markets currently in free fall, he is not sure whether he is “catching a falling knife” or not and says, like Thomas told FE Trustnet recently, it’s a case having to invest through difficult times.
While the fund has held up better than the index this year and in the significant correction we have seen over the last month, Willis says the major concern for investors in the fund is that, at the moment, St John doesn’t have a particularly long track record.
“I’m not saying he hasn’t performed well, but I would prefer to go with a manager who has been running money for a longer period of time,” Willis said.
“You kind of need to see how they got on in 2011, 2008 and, if you can stretch back far enough, in the early 2000s.”
However, Willis admits that there is nothing St John can do about that.
Willis added: “To be fair, he has had success and while he has generally managed the fund through a sweet spot for mid-caps, he has still beaten the market and also AXA clearly have a lot of faith him.”
