The Axa Framlington American Growth fund has seen a turnaround in performance as the market refocuses on growth stocks rather than defensive names.
The fund, managed by Stephen Kelly and assisted by Dan Harlow, is near the bottom of the IMA North America sector in terms of performance in the past year, according to data from FE Analytics.
However, it has returned to the top quartile in the past six months, and in the past three months it has delivered a return of 9.6 per cent compared to the sector’s return of 5.1 per cent.
Mr Harlow said performance had been hit by investors concentrating on defensive stocks. Now, however, he said they were beginning to come round to the more attractive valuations and potential in growth stocks.
Mr Harlow said: “What we saw this time last year was that the market moved away from growth stocks as the focus turned to the election and the fiscal cliff uncertainty, which led to a shift in market bias.”
Mr Harlow said that was a “tougher period” for the fund, not helped by a number of missed growth forecasts and disappointing top-line growth.
However, he said the fund’s strategy had not changed and certain growth stocks had been added when they were out of favour, although he admitted some disappointing names had been sold.
The pick up in growth of the US economy has led to a move by investors back to more economically sensitive companies in recent months, which has benefited the fund.
Mr Harlow said: “In the past few months people have recognised that valuations in defensive names were ahead of themselves.
“For example, only 28 per cent of consumer staples companies met earnings forecasts for the second quarter this year.”
The Axa Framlington American Growth fund has an overweight position compared to its benchmark in technology companies. Mr Harlow said this was due to the high levels of innovation in the tech arena, which made it an ideal sector for growth stocks.
The fund currently has a 26.6 per cent weighting to information technology stocks, with its top-10 holdings including Apple, Google, Amazon and Facebook.
Mr Harlow said he had been adding selectively to tech companies in recent months, particularly to Apple, which the fund had been underweight compared to its benchmark, but has a neutral weighting.
He said the size of Apple, currently the biggest company in the world, did not stop it having the potential for strong future growth because it had a history of innovation and launching new products, which meant “double-digit growth is still very much attainable”.
Mr Harlow said he had also been adding to the fund’s energy weighting, particularly connected to shale oil and gas, which he said would be an “exciting growth story for years”, looking at both exploration and production firms and support services firms.