Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
How it fits in a portfolio
Over the years we’ve witnessed the advancements in technology tap into almost every area of our lives. There is an abundance of companies across the globe, and it can be difficult to sift through the good and the bad. The AXA Framlington Global Technology fund invests in companies that research, design and develop technology across all sectors. These can be companies of any size and typically possess favourable traits including quality management. This may include exposure to smaller companies and some emerging markets, which both add risk.
Investing in a specialist area adds risk, and our analysis shows it’s difficult for managers investing in a specialist area of the market to perform better than their benchmark through good stock picking over the longer term. We think specialist funds like this should usually only form a small part of a well-diversified investment portfolio.
Manager
Over his career, Jeremy Gleeson has built over two decades of experience investing in technology. He joined AXA Framlington in 2007 and has been the lead manager of the Global Technology fund ever since.He also manages the Digital Technology fund and is co-manager on the Robotics fund. These are run in a similar way and invest in some of the same companies. We think he can comfortably manage his commitment to each.
Gleeson can make use of wider resources at AXA Framlington, drawing support from other portfolio managers including Tom Riley, Stephen Kelly and Pauline Llandric.
Riley has worked closely with Gleeson for many years and specialises in industrials. Kelly has been running US funds for over 20 years and has a natural overlap in the technology space, given the sector makes up a large part of the US market. He brings a more detailed focus on the economy and its outlook. Llandric focuses on some of the big names in the US too, but also spends some time looking at opportunities outside of the US, including China or Europe.
They can also call upon the support of other regional Framlington equity teams to give additional levels of insight, challenge and knowledge. We think Gleeson is well resourced to focus on the job in hand.
Process
Gleeson prefers to avoid higher-risk start-up or ‘blue sky’ companies, as these are largely unprofitable and tend to disappoint in the early stages. Instead, focus is placed on investing in companies that are run by progressive, quality management teams, which have high potential growth and profitability prospects.
These types of companies can be found across the globe but as the technology sector makes up a large part of the US market, Gleeson tends to find more opportunities there. The fund currently has around 88% of its investments in US technology companies.
Gleeson believes that a lot of early-stage US technology companies are staying private for longer and with support from the government. This means if a company decides to become public, it’s from a position of greater strength and is likely more established than some other early-stage companies in Europe for example.
That said, they find some opportunities outside of the US too. The fund invests in the UK and parts of Asia, including in TSM, a Taiwanese based semiconductor manufacturer and Chinese technology giant, Tencent.
Investing over the long-term is another key part of the investment process. Gleeson believes it’s important to build strong, long-lasting relationships with both the companies and their management teams. This provides an opportunity for higher levels of engagement and better insight into the company’s actions.
The manager typically keeps the portfolio turnover low, keeping buying and selling to a minimum, although there were several changes to the fund last year.
Software manufacturer EPAM Systems and cyber security provider Akami Tech were sold. Both saw upticks in demand following the pandemic but as things re-open demand is expected to fall. On the other hand, as supply chain bottlenecks have boosted semiconductor demand, semiconductor companies Broadcom Inc and Entegris were added.
There is also some flexibility to use gearing within the portfolio, which can magnify any gains or losses. Investors should be aware that if used, it increases risk.
Culture
AXA Framlington promotes a strong focus on investors’ interests and ensures they align with those of fund managers. Managers are rewarded on performance, with a focus on the longer term. They also focus on client growth and increasing fund size over time.
Environmental, Social and Governance (ESG) considerations have always played an important role at AXA but are now even more prevalent. Governance is at the forefront of Gleeson’s analysis, helping to identify good quality management.
Although ESG plays an important role in their analysis, a low score isn’t necessarily a reason for Gleeson and the team to exclude companies, but it triggers further analysis. It’s a good starting point to ask management teams additional questions to understand a company. Similarly, good ESG scores alone don’t provide a reason to invest.
Cost
The standard annual ongoing charge for this fund is 0.82% a year. This is one of the lowest charges among actively managed Global technology funds. The HL platform fee of up to 0.45% per annum also applies.
Performance
Gleeson became lead manager of the Global Technology fund in July 2007 and over his tenure, the fund has returned 1085.05%* compared to the IA Technology & Telecoms gain of 733.11%. Over this time, the fund has benefited from the tailwinds of investing in high quality companies with above average earnings growth, also known as growth investing.
Investors should note that while growth-style investing has done very well in recent years compared to value investing, a well-diversified portfolio should include a variety of styles, as well as different asset classes and geographies. Past performance is not a guide to future returns.
The fund has been under more pressure to perform more recently though and over the past 12 months it's returned 22.40%. Demand for some technologies has dropped as things have started to re-open. Those that surged during the early stages of the pandemic, including video platform Zoom Inc, haven’t been able to replicate the same performance. Rapidly increasing inflation and uncertainty around rising interest rates are causing concerns too. Rising supply and labour costs, alongside an increase in borrowing costs are putting pressure on the share prices of some technology companies.
On the other hand, some investments in cyber security companies have helped drive the fund’s performance, including in Proofpoint and Zscaler. Video game developer Activision Blizzard performed well too. Microsoft is set to acquire the company, which helped boost its share price.
This is a short timeframe though so you should consider this performance in the context of a longer time horizon.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Dec 16 -Dec 17 | Dec 17 -Dec 18 | Dec 18 -Dec 19 | Dec 19 -Dec 20 | Dec 20 -Dec 21 | |
| AXA Framlington Global Technology | 29.83% | 7.04% | 33.77% | 49.06% | 22.40% |
| IA Technology & Telecoms | 22.11% | 2.00% | 31.20% | 45.60% | 17.34% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2021.
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Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.
