AXA WF Framlington Digital Economy Celebrates 3 Year Anniversary
Saturday 24th October marked the three-year anniversary of the AXA WF Framlington Digital Economy fund. Since its launch, this has been managed by Jeremy Gleeson, who possesses over 20 years’ experience investing in disruptive technologies.
We are delighted that the strategy has continued to gather pace throughout the period, growing to assets under management of around $890mn as at 26 October 2020.
AXA WF Framlington Digital Economy performance1
Since its inception in October 2017, our Digital Economy strategy has navigated positively among different market environments, whether it’s in a bull market – such as 2019 – or more turbulent periods – such as 2018 or, more recently, in 2020. As a result, the Fund strongly outperformed the broader equity market, the MSCI ACWI, and posted an impressive annualised return of +24.3% over three years (versus 5.8% for the MSCI ACWI). We believe there are several factors which have contributed to the portfolio’s returns:
1) Focus on quality companies
We believe our focus on quality companies with strong balance sheets, strong margins, strong cash flow generation, and companies whose revenue growth are supported by their exposure to the long-term of the digital economy have been key to navigating changing market environments. While the digital disruptions impacting companies across industries are very dynamic in nature, it is critical to identify the long-term winners as there are losers even in areas of high structural growth.
2) Portfolio diversification
Having the scope to invest across different industries, countries and market capitalisation sizes expanded the opportunity set for our investment team. In addition, our exposure to the ‘4 Ds’ of the digital economy (Discovery, Decisions, Delivery, Data & Enablers) also allowed us to select the best ideas that have exposure to each of the sub-themes, rather than owning companies from just a single sector. It also allowed us to reallocate capital into areas where we see better growth opportunities within our investment universe.
3) Carefully considered stock selection
Part of our Framlington DNA, bottom-up stock selection has played a leading role in the Fund’s three-year performance. Furthermore, our Digital Economy strategy has a particular focus towards small- and mid-cap companies (market caps below $25bn)2 , which have provided the greatest source of alpha generation over three years.
During the period of uncertainty created by the pandemic, we remain focused on our investment philosophy, which is the preference to invest in companies which address a strong long-term opportunity. The drivers of the digital economy theme remain intact, and could play out even stronger once the current turmoil is over. However, it’s not all about being exposed to the right theme; it’s also about selecting the right winners from a large and diverse investment pool. We retain the view that high-quality management teams, operating businesses with a sustainable competitive advantage in their markets, and with the benefit of secular tailwinds, are best placed to weather the current storm. With this aim in mind, a fundamental stock picking approach with a deep knowledge of companies is paramount.
Key risks – AXA WF Framlington Digital Economy
The Fund is invested in financial markets and uses techniques and instruments which may be subject to sudden and significant variation, and may result in substantial gains or losses.
Counterparty Risk: Risk of bankruptcy, insolvency, or payment or delivery or failure of any of the Fund’s counterparties, leading to a payment or delivery default.
Impact of any techniques such as derivatives: Certain management strategies involve specific risks, such as liquidity risk, credit risk, counterparty risk, legal risk, valuation risk, operational risk and risks related to the underlying assets.
The use of such strategies may also involve leverage, which may increase the effect of market movements on the Fund and may result in significant risk of losses.
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