Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

UK Sustainable Equity strategy - December 2021

  • 18 January 2022 (5 min read)

BoE increased interest rates for the first time in more than three years

  • Omicron concerns abated as cases less severe, reducing impact on economic growth
  • GB implemented ‘Work, When and Where you Want’ policy, increasing job applications
  • DiscoverIE have set a 50% carbon emissions reduction target by 2025

What’s happening?

Having started the month with a broad sell-off due to concerns over the Omicron variant of Covid, the market gradually came to the conclusion that this strain of the virus was highly transmissible but likely less dangerous, and thus less disruptive to economic growth. A more surprising development came in the middle of the month when the Bank of England (BoE) unexpectedly increased interest rates for the first time in more than three years. The BoE described the decision as finely balanced. The lack of clarity on whether Omicron would be inflationary or disinflationary seems to have swung the decision to hike, along with the BoE feeling under pressure from headline inflation which is forecast to peak in Spring 2022 at around or above 6%.

The UK equity markets managed the traditional ‘santa rally’ through the final month of 2021 and unlike much of the rest of the year where style, size and currency factors skewed performance, during December the market’s advance was broadly spread. The FTSE All Share (+4.68%1 ), FTSE 100 (+4.75%1 ) and FTSE 250 (ex-Investment Companies, +4.95%1 ) all delivered positive returns, with the FTSE Small Cap (ex-Investment companies, +5.83%1 ) performing strongest of all. Over the 12 months, the FTSE 100 (+18.40%1 ) performed in-line with the FTSE 250 (ex-Investment Companies, +18.35%1 ), while the FTSE Small Cap (ex-Investment companies, +31.26%1 ) outperformed.

Portfolio positioning and performance

The strategy underperformed the FTSE All-Share Index in December as Rentokil pulled back following news that it is to acquire US peer Terminix for approximately US$6.7 billion. Whilst the deal makes strategic sense the size and unexpected nature of it caused investors to reduce their exposure to this long-term earnings compounder. Ceres Power continued to struggle as clean energy stocks remained out of favour with investors. The strategy’s exposure to the technology sector and not owning tobacco companies detracted from relative performance.

On a positive note, there were many solid performances with the takeover approach for Clinigen and strong performances from Auction Technology Group, Diageo, Experian, Moonpig, TI Fluid Systems & WH Smith.

From an Environmental, Social & Governance (ESG) point of view it was pleasing to see during the month that GB Group were thinking progressively and implemented a ‘Work, When and Where you Want’ policy. Following this approach, they have received a threefold increase in job applications in what is currently a very tight labour market. DiscoverIE are also very engaged from an ESG point of view. They have set a 50% carbon emissions reduction target by 2025 and are making good progress to achieve this through efficiency savings and installation and purchase of renewable energy. In addition to this they have launched a supplier code of conduct, integrated diversity principles in hiring practices & improved health and safety reporting. Treatt Plc recently won the best company to work for in the East of England. 73% of their employees are shareholders and also boast a very good tenure record. Hollywood Bowl have also integrated sustainability targets into team member incentive schemes and installed solar panels on their roofs.

During the month an engagement meeting took place with ‘in transition’ company Genus. ESG analysis was undertaken on the following names: Genus, Kin & Carta, TI Fluid Systems & Treatt. The portfolio consists of 66% in companies that are deemed as ESG leaders and 34% that are ‘in transition’ and cash.

Outlook

Market direction in 2022 seems likely again to be shaped by Covid and inflation. Central banks performed a u-turn on inflation in 2021, shifting from a reassurance that it would be a “transitory” reflection of the post-lockdowns bounce back to an acceptance that it is more persistent. With expectations that inflation will peak in the spring, there is the chance that central bank policy mistakes could be made. Striking the right balance between slowing the economy as it recovers and not allowing it to overheat will be hard to achieve, especially while withdrawing other monetary support.

There are, of course, reasons to be optimistic about equities in 2022. Economists are forecasting that global real GDP growth will remain above trend. China is in a different phase of its interest rate cycle and government support for the economy is likely to be given through the year ahead. In addition, global inventory levels remain low and the process of rebuilding them will be a further tailwind through 2022. Earnings forecasts are modestly set and valuations should not be a barrier to further progress following the strong earnings growth in 2021 which brought some multiple compression.

Our approach remains centred on owning good quality businesses that can reinvest and compound their returns over time. We continue to believe that understanding longer term structural trends and identifying responsible, reliable and ultimately sustainable companies, in a targeted, focused and active approach, remains the key to longer-term success.

No assurance can be given that the UK Sustainable Equity Strategy will be successful. Investors can lose some or all of their capital invested. The UK Sustainable Equity strategy is subject to risks including; Equity; Smaller companies risk; Liquidity risk; Investments in small and/or micro-capitalisation universe; Investments in specific countries or geographical zone.

  • Source: Bloomberg
  • Source: Bloomberg
  • Source: Bloomberg
  • Source: Bloomberg
  • Source: Bloomberg
  • Source: Bloomberg
  • Source: Bloomberg
Read the full insight
Download insight (214.28 KB)

Related Articles

Equities

UK Sustainable Equity strategy - March 2022

  • by Nigel Yates
  • 22 April 2022 (5 min read)
Monthly Perspectives

UK Multi-Cap strategy - February 2022

  • by Chris St John
  • 15 March 2022 (7 min read)
Monthly Perspectives

UK Mid Cap strategy - February 2022

  • by Chris St John
  • 15 March 2022 (5 min read)

    Disclaimer

    Not for Retail distribution: This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment.  Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities. The strategies discussed in this document may not be available in your jurisdiction.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for professional external advice.
    The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available.  Please note that the management company reserves the right, at any time, to no longer market the product(s) mentioned in this communication in the European Union country by notification to its authority of supervision in accordance with European passport rules. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors. In the event of dissatisfaction with the products or services, you have the right to make a complaint either with the marketer or directly with the management company (more information on our complaints policy is available in English https://www.axa-im.com/important-information/comments-and-complaints). You also have the right to take legal or extra-judicial action at any time if you reside in one of the countries of the European Union. The European online dispute resolution platform allows you to enter a complaint form (https://ec.europa.eu/consumers/odr/main/index.cfm?event=main.home.chooseLanguage) and informs you, depending on your jurisdiction, about your means of redress (https://ec.europa.eu/consumers/odr/main/?event=main.adr.show2).

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate, London EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.