Marwood stymied by equities limit on Distribution fund

Axa Investment Management’s Richard Marwood is running up against the upper limit for equities in his £912.9m Axa Distribution fund due to the opportunities he is seeing in the UK market.

The fund generally has 50-60 per cent held in equities but has been hitting the upper limits of the equity exposure allowed by the IMA Mixed Investment 20-60% Shares sector restrictions.

Mr Marwood said he had been “very close to breaching the 60 per cent limit” and had been forced to be a net seller of equities during the recent rally.

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The fund posted a top-quartile gain of 26 per cent in the three years to August 16, according to FE Analytics, but has underperformed its peer group in the short term, losing 2.2 per cent in three months.

Mr Marwood has had to invest cash into index-linked gilts, which are used to balance out the risk from the equities because they tend to be negatively correlated. However, in the past three months index-linked gilts have lost money as investors exit fixed income assets, with the FTSE British Government Index-Linked All Stocks index losing 6.6 per cent.

Within the equity portion of the fund, Mr Marwood said he had been trimming money from some defensive stocks, which have increased in price considerably in recent months, and has been buying into miners.

But he added that sectors such as tobacco, pharmaceuticals and utilities still look cheap even after rallying hard this year and said if he could then he would buy more equities.

Last week, an index-linked gilt worth more than 6 per cent of the Distribution fund matured, but Mr Marwood had been running down his cash levels from 3.5 per cent to nearer to zero in preparation. Jim Stride, head of Axa IM’s £13bn Distribution range, said the team had been steadily adding the cash back into index-linked gilts across the duration spectrum since the gilt matured.

Mr Marwood dismissed the idea of launching a new fund with a higher upper limit for equities.