In this five-minute video interview, the fund manager discusses what he learned from his mentor and how he is steering the fund he inherited.
Can't watch now? Read the transcript
Daniel Grote: Hello, I’m joined by Chris St John, who at the turn of the year took over the AXA Framlington UK Select Opportunities fund, which had been run by Nigel Thomas for over 16 years. Now Chris thanks for joining us.
Chris St John: Pleasure.
DG: Now you told investors before taking over the fund that they shouldn’t expect a big bang, and you emphasised the similarity of your approach with that of Nigel and that you’d worked alongside him ever since you joined AXA in 2005. What have you learned from him and how has that influenced the way that you invest?
CSJ: It’s an interesting question. Certainly to have confidence in your own convictions, to be patient, I think really reinforcing some of my own beliefs and giving me the confidence to back myself in terms of my fundamental belief that management teams drive businesses. Balance sheet strength is hugely important if you want to keep the balance of power in the hands of the equity holders and meeting companies is a great source of information both about individual businesses and wider markets as well, which is important when you’re constructing portfolios and trying to find good ideas to invest in.
DG: It’s nigh on impossible to talk about UK equities without talking about Brexit and the UK’s exit from the European Union is particularly pertinent for your funds. Nigel Thomas said that 2016 was his worst year of relative performance, the fund took a hit from that referendum vote and there was a similar story for the AXA Mid Cap fund that you run and the UK fund based in Luxembourg. How have you responded to that setback and how are you currently positioning your funds.
CSJ: I suppose one of the things about Brexit is we don’t know what the outcome is going to be. We don’t know the basis on which we go forwards. So because it’s so difficult to predict and predicting the capital flows as a result of that and indeed the trading environment that will result, having no control over it means I don’t really focus on it as a main driver of asset allocation.
DG: One of the challenges you are likely to face is that of outflows. The fund that you have taken over has broadly halved in size since the Brexit vote and there’s a more widespread shunning of UK funds from investors at the moment. How will that influence how you run the fund? Because I guess with an all-cap fund like the one you’re running, the temptation would be to sell the biggest stocks because they are the easiest ones to find buyers for.
CSJ: You’re right, there have been fund outflows. A lot of what I would call the material amounts have come largely because of asset allocation calls: people going global, away from the UK, which is something that has been going on for many years now. In terms of dealing with the redemptions, so far, absolutely fine. You need to stay slightly ahead of the curve: one thing I haven’t been doing is just selling the large liquid companies to deal with it. The shape of the portfolio has been kept and I’m happy with the shape of the portfolio.
DG: Industrials are a major holding in Select Opportunities, representing around 40% of the fund. Can you tell me a bit about why that weighting is so high?
CSJ: Now when you look at that sector in aggregate it is very overweight. About half of that overweight comes from support services and within that there’s a very eclectic group of companies. So companies like Rentokil (RTO) and pest control are in there: you might not think of that naturally as an industrial company.
DG: You’ve got that play on e-commerce as well, that’s sort of hidden within that industrials segment. Companies like Eddie Stobart Logistics (ESLE) and Worldpay (WPG) that you think can thrive in this new environment.
CSJ: You know, if you’re looking for bright spots in the UK economy, we are a very densely populated country. E-commerce works very well in this country, either business-to-business or consumer-to-consumer. And if you look at the growth of internet retail, it’s spawned whole new industries. Return logistics, for example: a huge amount of apparel bought online is returned to the company it was bought from, and that has to be dealt with, and it’s very expensive to deal with, particularly if you’re giving free returns. The costs of that all come off your bottom line. So the likes of Eddie Stobart Logistics and others have sprung up to deal with the cost of taking goods back.
DG: Chris, thanks a lot for your time.