Axa’s St John shrugs off stimulus effects on commodities
UK mid cap manager stays out of commodities in spite of stimulus boosting markets.
Axa Investment Managers’ Chris St John has retained an underweight position in commodities and resources in spite of recent central bank stimulus boosting the sector.
The manager held 16 per cent of the £11.8m Axa Framlington UK Mid Cap fund in the oil and gas and basic materials sectors according to its July 31 factsheet, but this was significantly lower than the fund’s benchmark FTSE 250 stockmarket index.
Mr St John said: “If the past is anything to go by then the big stimulus packages mean commodities and related stocks will rally, and that is a potential risk, but we have to weigh that up against what’s actually happening on the ground.”
The Chinese government’s so-called ‘five year plan’ for economic growth has focused more on domestic consumption, Mr St John said, which has reduced the country’s reliance on commodities and resources companies.
“If some massive infrastructure spending is released then there would be a fundamental reason for increasing our position,” he added.
The US Federal Reserve and the European Central Bank (ECB) have both launched stimulus packages this month, pumping billions into the US and European economies in attempts to calm markets and boost economic growth.
Since the ECB’s move on September 6, the FTSE 250 index has rallied 5.9 per cent, led by several oil and gas stocks such as Wood Group, Premier Oil and Cairn Energy which have all gained more than 3 per cent. Meanwhile the UK Mid Cap fund has gained 4.5 per cent.
The UK Mid Cap fund was launched to retail investors in May last year. From launch to September 17, the fund ranked fifth of 289 peers in the UK All Companies sector, gaining 16.4 per cent compared with the sector’s 3.4 per cent average return.
Mr St John was more positive on housebuilders, having increased exposure to the construction sector towards the end of 2011. He explained that, following the collapse in house and land prices at the height of the financial crisis, some listed developers have been able to recapitalise and buy up land at the bottom of the market.
He added he was also increasing the fund’s exposure to retailing stocks to bring it in line with the index.
“We’re trying to find companies with economic headwinds and use the volatility to enter and exit - it gives us the liquidity and opportunity to enter,” he said.