Mark Dampier: Follow the fund manager who's ready to seize his opportunities
Saturday 24 May 2014
A common complaint from advocates of passive investing is that it is impossible to identify great active fund managers at the beginning of their career. This is a perfectly reasonable criticism and one I agree with. Wait a few years though and it is possible to start picking winners.
Take Nigel Thomas, manager of the AXA Framlington UK Select Opportunities Fund, for example. He built a strong track record at ABN Amro from 1987 until he joined AXA Framlington in September 2002 to manage this fund. Those who invested at this point based on his experience would be pleased with the results. Under his tenure the fund has grown by 287 per cent compared with 168 per cent for the FTSE All-Share Index.
Mr Thomas is now 59 and facing speculation over when he will retire. He has made it clear to me that he has no imminent plans to do so. He still loves meeting companies and attends the office five days a week. Eventually, of course, he will retire, but the good news is succession plans are in hand with Chris St John lined up to take over. The pair already work closely together and Mr St John is doing a good job on the AXA Framlington UK Mid Cap Fund. It is good to see succession being considered at an early stage and I regard Mr St John as a safe pair of hands.
Mr Thomas tends to show a slight bias to smaller and medium-sized companies. With a fund approaching £5bn, you might think this could cause problems; however, he has never had any problem gaining exposure to his favoured smaller companies.
At present 60 per cent of the fund is invested in larger companies, slightly more than usual. There are two reasons for this. First, 20 per cent of the portfolio has been so successful it has progressed from the FTSE 250 index to the FTSE 100 over the past couple of years. This includes companies such as ITV, Travis Perkins and Weir.
The second reason is an active decision to increase exposure to some of the UK's largest companies – the so-called mega-caps. Mr Thomas feels recent changes to pensions legislation are a real game-changer. Essentially retirees have more flexibility over how they use their pension to generate an income and he believes this will create demand to invest in higher-yielding large companies.
The fund is overweight in pharmaceuticals via AstraZeneca, GlaxoSmithKline, Shire and BTG so the recent strong performance among pharmaceutical companies helped the fund.
Mr Thomas adopts a buy-and-hold approach, and does not get too concerned if some companies become moderately overvalued. He is happy to wait for earnings growth to catch up with share prices, even if it means a bit of short-term pain.
He believes companies capable of strong growth deserve to be highly rated, as some of his medium-sized company holdings such as Elementis and Rightmove are today. However, he is sure they continue to have good prospects and will continue to grow earnings over the next three to five years as well as returning cash to shareholders via dividends and share buy-backs. He also believes their profit margins are sustainable.
Elsewhere, he has reduced the fund's technology holdings over the past couple of years and now retains just two positions in the sector, Spirent and Imagination Technology.
He invested in the recent float of Poundland, "backing the man" with his experience helping him to identify successful management teams.
Performance so far this year has been behind the benchmark, as smaller and medium-sized companies have performed less well than larger counterparts. This trend could continue for a while, so it could be a tough year for this fund.
Mr Thomas's long-term track record speaks for itself, though, and I believe this remains a solid core UK fund. Long-term investors might even consider topping up on any weakness.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk
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