Square Mile Consulting & Research has said its AAA rating for the fund is not under threat; however, Morningstar has placed the fund under review, while Tilney managing director says it would be prudent to monitor St John’s transition to a larger mandate.
Morningstar senior fund analyst Simon Dorricott said the ratings agency are assessing how St John (pictured) is going to handle taking on a much larger fund, despite similarities with his offshore all-cap fund.
“Essentially, we really need to understand how Chris is going run the portfolio. The UK Select Opportunities fund is just under £3bn and Chris’s all-cap fund is only £138m and his mid-cap is only £153m,” Dorricott told Portfolio Adviser.
“Both of those are considerably smaller than this portfolio so we need to understand what differences that might make to the way he runs money and get comfortable with that as well.”
Dorricott will speak to St John before making an announcement on the fund’s rating.
Within the UK All Companies sector, there are only 16 funds with AUMs greater than £3bn and 7 trackers, making the Axa IM fund one of the largest already.
Tilney’s managing director Jason Hollands said that while he doesn’t think taking on the larger fund will be problematic for St John, it is right “to be cognisant where a manager with a great track record on a small fund takes on a very different and sizeable mandate, as their performance might be hard to repeat”.
Darius McDermott, managing director at Chelsea Financial Services, listed Invesco Perpetual’s Mark Barnett as an example of a fund manager who has successfully managed the transition to a much larger mandate.
Sanjeev Shah, who took on Fidelity UK Special Situations from Anthony Bolton in 2008, and more recently Alex Wright too when he took over from Shah, are additional examples.
He says that while St John’s own mandates have been smaller, he does have experience working on the fund with Thomas.
“I see no reason why he wouldn’t be able to it,” McDermott said. He adds St John has been “part of the wider UK Equity team for about a decade”.
Hollands adds: “In the case of Fidelity’s Alex Wright, who cut his teeth as a smaller companies manager, the handover of the Fidelity Special Situations fund in 2014 – which is also a multi-cap fund of over £3 billion – has gone really well.”
Axa IM performance
Over a three-year and five-year period, St John’s Axa Framlington UK Mid Cap fund is top quartile in the IA UK All Companies sector.
In contrast, the UK Select Opportunities fund underperformed against the same sector.
Performance of Axa Framlington UK Mid Cap and UK Select Opportunities funds
|Axa Framlington UK Mid Cap||2.88||8.27||31.38||80.74|
|Axa Framlington UK Select Opportunities||4.41||7.20||15.64||45.75|
|FTSE All Share index||5.99||8.82||24.69||45.48|
|IA UK All Companies sector||4.98||8.13||23.48||50.67|
FE fund analyst, Robert Wilson said the UK Select Opportunities fund was removed from the FE Invest Approved list in September 2016, as a direct result of underperformance in both 2012 and 2016.
Wilson added: “It should be noted that in the intervening years, 2013 to 2015, the fund did outperform its benchmark. However, this improved performance did not outweigh the periods of underperformance.”
Doricott said although Thomas and St John’s funds are not managed exactly in line, they both take a growth orientated, longer-term approach.
“Looking at holdings on a broader level, they are essentially in line with their underweights and overweight’s versus the FTSE index,” Doricott said.
When it comes to sector breakdown, the UK Select Opportunities fund invests heavily in industrials (37.49%), healthcare (13.88%) and consumer services (13.29%), while the UK Mid Cap fund also has a large holding in industrials (39.29%) and consumer services (16.01%), but also has a large allocation to financials (17.57%) .
No need to panic
Doricott said that as Axa IM have announced succession well in advance of the retirement, Morningstar have a lot of time to assess the fund.
Thomas retires in March 2019, but will hand the fund over to Chris on 31 December 2018.
“He’s very much in control of the portfolio up until the end of this so the first message is that there is no need for any investors to panic at this stage,” he said.
Andrew Johnston, senior investment research analyst at Square Mile Consulting & Research, described the handover to St John as a “sensible appointment”.
He said: “We hold Mr St John in high regard, as reflected by our A rating on the AXA Framlington UK Mid Cap fund, a strategy which he manages. Over the coming months we will be meeting with both managers to discuss the transition and shall provide an update should any future action be taken.”
Likewise, The Adviser Centre is keeping both the AXA Framlington UK Select Opportunities fund and St John’s AXA Framlington UK Mid Cap on its recommended funds list.
Gill Hutchison, research director at the firm, said: “Based upon our knowledge of Mr St John and the other members of the UK investment team, we see this as a logical succession plan.”