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AXA IM’s Nigel Thomas: Lessons from a 40-year investment career

12 December 2018

Veteran investor Nigel Thomas explains how investing has changed since he began his career and what ‘data capitalism’ means for established companies.

By Rob Langston,

News editor, FE Trustnet

The rise of digital capitalism and the impact it has on long-established businesses has become one of the biggest themes dominating markets during the latter stage of veteran investor Nigel Thomas’ career.

Thomas, who manages the £2bn AXA Framlington UK Select Opportunities fund, is to retire from AXA Investment Managers in March and said that his 40 years in the UK investment industry has taken in a number of developments.

Since January 2000 – the start of data on FE Analytics – Thomas has delivered a total return of 255.96 per cent.

Performance of manager since 2000

 

Source: FE Analytics

He said: “There have been many changes to this industry since I started, just before Maggie Thatcher was elected in 1979.

“You never stop learning in this industry, whether through the gloom of the crash of 1987 or the credit crunch of 2007/8, or the euphoria of the tech bubble in 1999/2000.” 

While many things about markets and investment have changed during career, Thomas said fund management has not become any easier.

Indeed, the AXA manager (pictured) said “amber lights are flashing” in the wider economy,

“Equity prices do not like rising interest rates, and are reacting,” he explained. “The withdrawal of quantitative easing, and replacement with quantitative tightening, will now shrink the Fed and Bank of England balance sheets.

“This will likely result in less liquidity, which has previously driven many asset prices.”

The manager added: “Combined with slower growth in China and trade issues with the US, Brexit, [Labour party leader] Jeremy Corbyn and the European Central Bank being less accommodative, and a strong US dollar in emerging markets – things are looking more uncertain.”

One of the biggest changes for markets more recently has been the rise in ‘data capitalism’ and how it has affected established companies.

“The new rules of data capitalism are still being written,” Thomas explained. “Where data capitalism is embraced in data-rich markets, such as the UK, traditional companies are challenged and have to adapt or become obsolete.

“It is one of the functions of the investment manager to establish which they are and avoid the ‘dinosaurs’.”


 

Indeed, the veteran fund manager said that “it should come as no surprise” that former retail giants like Woolworths and British Home Stores no longer exist given the changing nature of business.

Other high street retailers are feeling the pressure, as online shopping becomes more ingrained among investors. However, it is not just restricted to the retail space, extending to other industries like property, automobiles, travel and hotels.

As such, Thomas said that it has taken positions in online companies such as Rightmove, Autotrader, and Worldpay.

The fund manager said online businesses have been able to expand into new geographies much faster while established businesses have underestimated developments in technology and the potential for disruption.

“Disruptive innovation is also manifesting itself in many ways,” he said. “Some disruption will continue to arise from advances in battery and storage technologies, and smart voice-activated assistants, 5G communication and autonomous vehicles.

“Citigroup estimated that the average company lifespan on the S&P 500 Index has dropped from 61 years to 18 years. Those dinosaur companies fighting the old are not coping with behavioural changes, technological changes and industry and/or sector changes.”

Performance of stock over 3yrs

 

Source: FE Analytics

Not all ‘dinosaur companies’ are the same, said Thomas, highlighting one company that it has been adding exposure to in the AXA Framlington UK Select Opportunities fund was established in the 1750s and first listed in 1890.

“Coats Group is the world’s leading industrial thread manufacturer with a 20 per cent market share,” he said. “It is also a major player in American textile crafts. Their threads keep your jeans and trainers together. Customers include Uniqlo, Nike, Adidas, Under Armour, Next and GAP.”

The fund manager added: “It is in Coats’ operations where they have embraced new and digital strategies. More than 90 per cent of thread sampling by customers is digitally-enabled. More than 20 per cent of performance material sales come from new products, developed in three innovation centres, increasingly interacting with start-up companies and universities.

“They have put in programmes to reduce energy and water and invest in more efficient equipment, which has led to a 26 per cent decline in water usage and a 20 per cent decline in energy over five years.”



However, not all ‘dinosaur companies’ are able to adapt to new market conditions, said the AXA manager.

“Where corporates find it difficult to enable these types of strategies across silos or individual business units, some more radical solutions are adopted,” he explained. “One we particularly favour is de-merger, where significant value can accrue.”

One holding going through that process is life insurance group Prudential, which is currently demerging its asset management business M&G.

“Upon completion, there will be two listed companies with different investment characteristics and opportunities: M&G Prudential, with £341bn in assets under management, and Prudential plc, which comprises their US variable annuities business, Jackson National Life and the fast-growing Prudential Corporation Asia,” he said.

Given the scale of change in markets, the fund manager said it has stuck by its investment mantra that ‘things will not necessarily get better or worse, but will become different’.

“Through all this change, the enjoyable part has been finding good companies and management teams that can genuinely enhance shareholder value over the long term,” he said.

“Equities are long duration assets and we are comforted that the long-term compounding of reinvested dividends is compounding in your favour, not against you. As the third act of my life beckons, I will continue to enjoy following trends and stocks and hopefully find a few successful compounders along the way.”

 

Thomas joined AXA Framlington UK Select Opportunities in 2002, during which time it has delivered a 357.37 per cent total return, compared with a 234.47 per cent gain for the FTSE All Share and a 220.02 per cent return for the average IA UK All Companies peer.

Performance of fund vs sector & benchmark under Thomas

 

Source: FE Analytics

He will be succeeded by Chris St John, with whom he already co-manages a number of other mandates and who has promised investors that there will be no ‘big bang’ to the way the fund is managed.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.