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Axa’s O’Toole: we're at a digital migration inflection point

Axa’s O’Toole: we're at a digital migration inflection point

Finding the growth companies of the future requires a new way of thinking, argues Axa Investment Managers’ Amanda O’Toole.

Earlier this year, O’Toole (pictured) was appointed co-manager of the Axa Framlington Global Thematics fund alongside Mark Hargraves. The fund was overhauled and its name changed from Global Opportunities.

The fund has returned 33.65% to investors over the past three years, slightly better than the 32.7% achieved by the average manager.

Despite this, the company felt that performance could be improved by ensuring the investment approach underpinning it is ‘fit for purpose in an evolving world’, O’Toole explained.

‘We have completely changed the way our research teams work. We are now structured around five themes that we think are the multi-decade drivers of growth,’ she said.

The themes comprise ageing and lifestyle, automation, cleantech, the connected consumer and transitioning societies.

‘We remain fundamental bottom-up stock pickers, as a house that’s what we do. My job is to use the new research model, alongside my co-manager Mark Hargraves, to find the best opportunity set in each of these areas,’ O’Toole said.

‘We think looking at a company and thinking of it as a tech company or a retailer is less important than how it accesses the growth opportunities available to it. We don’t really use the Gics [Global Industry Classification Standard] classifications and we don’t really take a view on whether we should be overweight or underweight a region, because it’s largely irrelevant.’

Best ideas

Following the restructure, the fund is slightly more exposed to its connected consumer theme than the others.

‘When you think about areas like e-commerce and find out that only 9% of retail sales are online, you realise that we are at an inflection point, because all the building blocks for that migration to digital are in place,’ O’Toole said.

‘As a result, there are already a lot of really good companies that stand to benefit from and take advantage of this inflection point.

‘The reason to own Amazon isn’t because it’s a retail or IT company, but because it feeds into the mega trend of e-commerce.’

Amazon is the sixth biggest holding in the fund, representing 2.23% of the portfolio, and fits under the connected consumer theme.

Other major holdings representing this theme in the fund include Alibaba and software company , which now offers its software through an online subscription service.

She argues, however, that over the longer term, the largest opportunity set will be found in the clean technology theme, highlighting the threat of water scarcity as one driver.

As countries need to act now to ensure this does not become a chronic problem in the future, due to population growth, there is a necessity to develop technologies that can recycle and clean water, while improving efficiency.

Companies that do not understand this are likely to be left behind, she added.

An example of Axa’s investments in this theme include Umicore, which among other things creates catalytic converters to reduce emissions in cars and battery materials.

As part of its transitioning societies theme, the fund also holds pan-Asian insurance company AIA.

‘Asian consumers, especially in China, are becoming more affluent and this is making them more likely to take out insurance,’ she said. ‘AIA is the market leader in a lot of the fastest growing insurance markets in Asia and has a leading market share in the biggest market, China.’ 

An example of a company in the ageing and longevity theme in the portfolio is Dexcom, a medical devices company that has most notably created a continuous glucose monitoring system.

The demand for age-related medical technology is only going to increase in the future due to demographics, O’Toole notes, adding that Dexcom’s roster of products make it well suited to benefit from this increase in demand. 

Big changes

O’Toole said that in order to reposition the fund to reflect the new approach, the fund’s turnover has been higher than normal, with many of the names previously held by the fund being sold.

‘I moved to the team in August and we transitioned the portfolio from the old model to the new model. In order to do so, there was a one-time 40% turnover in the fund. Our normal turnover is below 30% and usually it’s around 20-25%,’ she said.

‘A good deal of that was divesting from several companies that look pretty good right now, but whose long-term outlook is not as great. For example, we have divested from a company named EIG. We have taken this capital and invested it in cleantech.’

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