Axa Investment Managers has ditched the ‘blue chip’ label from its UK equity income fund and broadened its investment universe in a bid to get with the times and attract assets in a highly competitive space.
From 4 September the Axa Framlington Blue Chip Equity Income fund will become the Axa Framlington UK Equity Income fund, which the group said will better reflect the fund’s new investment objectives and its ability to invest in small and mid-cap companies.
It will still aim to produce higher than average long-term growth of income and capital and target a yield of distributable income in excess of 100% of the FTSE All Share on a rolling three-year basis, and in excess of 90% on an annual basis in line with the Investment Association’s requirements for funds in the UK equity income sector.
When Simon Young (pictured) took over the fund from Jamie Forbes Wilson last November commentators were optimistic he would turn performance around boost assets in the “sub-scale” £75m strategy.
But 10 months later and the fund’s assets are only marginally higher at £76.54m as at 17 September, according to Trustnet.
Performance has picked up in 2019 with the fund landing in the first quartile over six months and one year but it is still trailing peers on a five-year view.
Since it was launched in February 2009 it has returned 194.6%, which is 10% higher than the total return produced by the IA UK Equity Income sector.
| 3m | 6m | 1yr | 3yr | 5yr | |
| Axa Framlington UK Equity Income | 1.1 | 5.3 | 4.8 | 15.5 | 26.3 |
| IA UK Equity Income | 1.5 | 2.3 | 0.8 | 14.5 | 29.1 |
Source: Trustnet
‘Blue chip’ is dead
AJ Bell head of active portfolios Ryan Hughes said the Axa rebrand “makes sense” not least of all because the term ‘blue chip’ has fallen out of fashion among investors.
“It feels a bit like the term ‘blue chip’ has really gone from the industry. Historically it would have indicated a level of quality in investing in the biggest and best-known high-quality companies. I think that phraseology is gone.”
By billing itself as a blue chip equity income fund the Axa fund has ended up with a mandate “that is a little bit too restrictive” and “a very concentrated portfolio of the usual suspects,” said Willis Owen head of personal investing Adrian Lowcock.
“What you really need from equity income is a combination of stalwarts, the reliable dividend payers, with those that are able to offer some dividend growth and you need diversification within that as well,” he continued. “We know from experience, things like BP cutting its dividend or the banks cutting their dividends, if you have too much in one company it can have a big impact on the yield of the fund.”
Axa Framlington UK Equity Income is yielding 3.97%, according to Trustnet.
Trend toward multi-cap
Lowcock notes the UK equity income market has always been a highly competitive space, where the big players like Invesco, Rathbones, Artemis and, up until recently, Neil Woodford have taken the lionshare of incoming client flows.
But recently the funds that have found the most success have tended to have a multi-cap bent, says Lowcock, citing Unicorn UK Income or the more defensive Trojan Income.
Hughes cites the rise of cheaper passive alternatives as another threat to traditional UK equity income funds.
“There are so many more passive options now,” he said. “You can get a large cap income passive ETF for a very low cost, so I think it’s important that funds are differentiating themselves to make sure they’re adding value for their active fees.”
Three quarters of Axa UK Equity Income is invested in FTSE 100 names. Axa did not specify how much of the fund could be held in mid and small cap companies but Hughes thinks having more “flexibility” is the key takeaway.
“As an active manager giving yourself a wide opportunity set is important and that seems to be what they’re doing here.”
