The £910.1m Axa Distribution fund has an objective that tends to appeal to the more cautious investor.
Jim Stride, deputy manager on the fund, explains: “We’re trying to give investors a much smoother ride than they would have from full exposure to the equity market.
“So our classic distribution fund asset mix is 55 per cent equities, 35 per cent index-linked gilts, 7 per cent gilts and 3 per cent cash. The asset mix is not static, but we would not exceed 60 per cent in equities at any time.”
The portfolio typically invests in the equity space, according to Mr Stride. He is looking for stocks yielding, on average, more than the FTSE All-Share index.
He elaborates: “We like to invest in companies with what we would describe as having a strong business model and relatively high barriers to entry in the business. So we like companies that have, I wouldn’t say an impregnable position, but a dominant position in their industry.”
Hence the manager favours companies in the utilities sector, including water, telecoms, gas and electricity suppliers, as well as in tobacco, pharmaceuticals and the large oil stocks.
As might be expected of a portfolio that sets out to appeal to the cautious investor, the fund sits at level four on a risk and reward profile, according to its key investor information document, with ongoing charges at 1.51 per cent.
“I would say it’s a stockpicking approach,” Mr Stride says. “The macro factors are interesting to put things in context, but at the end of the day it’s about the businesses in which we’re invested.
“As far as index gilts are concerned, we take a long-term view that investors do need to protect themselves against the insidious effects of inflation over time, and the best way to do that is probably represented by index-linked gilts.” He insists that turnover in the portfolio is very low, in line with the long-term investment approach.
The fund has delivered consistent performance in the IMA Mixed Investment 20-60% Shares sector, having achieved second-quartile returns over one, three, five and 10 years, according to FE Analytics.
In the 10 years to August 26, it delivered a return of 81.08 per cent, compared with the IMA sector average of 65.95 per cent. Over the three years to August 26, the fund returned a slightly more modest 29.99 per cent to investors, just beating the sector average of 24.77 per cent.
Mr Stride suggests the first half of this year has been “relatively good” for the portfolio’s strategy, citing the fact that many of the holdings in the fund are well-established, large-cap stocks. “We’ve benefited from both realised and potential bid activity in the pharmaceuticals sector, in the cases of Shire and AstraZeneca,” he observes.
“In general, we remain moderately overweight in UK equities and underweight in fixed interest gilts where we see relatively little value, and that, of course, has not been a great decision in the short run. But I think in the long run it’s a good position to be in, given the fact that gilt yields are very low and prices are well above the redemption prices of typically 100.”
While the pharmaceuticals sector has boosted the fund’s performance in the last year, there is one sector that the manager highlights as having detracted from performance.
“Where we’ve suffered a little bit has been in the leisure sector, where the gaming stocks, such as Ladbrokes and William Hill, have been relatively weak as a result of changes and anticipated changes in legislation,” he admits. “Because we’re taking a longer-term view, we will hold through positions of weakness in the market.
“We’re a little bit concerned about Ladbrokes, but the underlying strength of the businesses of Ladbrokes and William Hill in the gaming industry is reasonably good, so we’re quite happy to remain with them in the portfolio.”
EXPERT VIEW
Jake Moeller, head of Lipper research, Lipper
Verdict
Richard Marwood’s fund is riding close to the maximum limit of equities within the sector (59 per cent). Its fixed income component contains no corporate bond exposure, which means little in the way of correlation alignment if equities head south. But the long duration of the bond portfolio does cause some problems – longer-dated bond portfolios have been badly affected by the ‘pain trade’ that occurred in January 2014 as yields compressed in spite of overall expectations of monetary tightening. However, overall this is a strong distribution fund offering a competitive 2.7 per cent underlying yield and a durable track record of sober and consistent management.
