Family offices, SWFs, central banks and insurers key focuses of AXA IM’s funds
Thematic investing, often called trend investing or mega-trend investing, is a broad term used to describe investment approaches that focus on certain economic, corporate, social or technological themes. In today’s highly disruptive world, these themes are typically centred around the main two drivers of long-term corporate behaviour — demographic shifts and technological changes.
A thematic investment approach can therefore help investors tap into drivers of long-term change and growth and better better identify companies’ longer-term prospects.
One such fund manager is Framlington Equities which adopts an active investing process which is based on fundamental analysis, adding and removing stocks from a portfolio, in an effort to outperform the broader market or a specific index on a risk-adjusted basis.
Framlington Equities is one of the asset groups belonging to AXA Investment Managers (AXA IM). Part of the AXA group, AXA IM was reorganised in March into AXA IM Alts and AXA IM core.
“Within Framlington Equities, we have created themes such as evolving trends, fintech, clean economy, women empowerment and we are seeing a lot of demand for these investment themes, not only on the retail side but for key institutional clients which look at these themes specifically,” says Terence Lam, managing director, head of sales and marketing, Asia at AXA IM.
The five evolving economy themes AXA IM have identified are the results of long-term demographic trends and technological developments that it believes can offer equity investors access to the best opportunities for long-term structural growth, regardless of how companies are defined geographically or from a sector perspective.
One of the themes is robotech. The demand for industrial robots has accelerated in recent years due to the ongoing trend towards automation and innovative technological advancements. To help investors tap into the multi-decade investment potential of automation, AXA IM has identified four investable areas of the robotics market: industrial automation, transport, healthcare and technology enablers. “We started the robotech mandate with one key client and that started to build demand, so robotech became a fund,” Lam says.
As at March this year, AXA IM core manages US$882 billion ($1.2 billion) of assets, of which US$560 million comprises fixed income.
Besides Framlington Equities, other assets groups in AXA IM include the multi-asset portfolio. Recently, AXA IM also acquired Rosenberg Equities, which uses advanced data science approaches to investing.
Meanwhile, the AXA IM Alts business unit encompasses real assets, structured finance and the hedge fund Chorus investment platforms, totalling EUR137 billion ($238 billion) in AUM.
AXA IM distributes to retail and institutional investors, says Lam. Its retail investors comprise private banks and family offices. Institutional clients include insurers like its parent AXA, sovereign wealth funds (SWFs), central banks, pension funds and the like. While Lam heads the distribution teams in Asia, AXA is a European company based in Paris.
Private banking clients and family offices represent an area of growth for AXA IM, which is why geographically, Hong Kong and Singapore are key hubs for the company, even though a lot of the wealth is created in Indonesia and China. The large Chinese family offices are also located in these two cities. For central banks, SWFs and insurance companies, Lam says “we want to speak to all of them in Asia Pacific”.
In terms of products, SWFs and central banks usually look to invest in inflation strategies through fixed income investments. “They like our inflation strategies. Central banks have a lot of assets and they need asset allocation models, which include inflation strategies,” Lam says.
With central banks themselves using quantitative easing to infinity and record low interest rates to mitigate slow economic growth, how do AXA IM’s fixed income funds offer higher yields?
“One of AXA IM’s flagship strategies is its US high yield portfolio. Our US high yield team manages US$72 billion of US assets, We are a market leader in the US high yield space, and one of the best inflation managers in the world in terms of performance and AUM,” Lam indicates. “Central banks have fixed income allocations which take up the majority of their asset allocation, and some sovereign wealth funds have started to invest in alternatives and have a bucket which caters for longer investment horizons.”
“For family offices and private banks, we are focusing on a few key strategies. Most private banks have their own CIOs. These private banks will have tactical and fundamental bets. Similarly, we have robotech and digital economy strategies which they like. Once they strongly believe in this, it is a focus strategy. The big private banks have access to hundreds of funds for distribution, but they can only focus on maybe 10 to 20 funds. To get on this list, we need to have fixed income strategies as well, and we do. In addition, equities are selected on a thematic strategy. Althugh most distributors offer this, we offer matches [with fixed income],” Lam explains.
Similarly, for AXA IM Alts, private banking clients who can tolerate a longer time horizon are interested in real assets which sometimes provide higher returns than equities. “We work directly with family offices, and once we get to know the clients better we see [real assets] as a key focus. Sometimes we might have a family office that may not trade with us directly but through a private bank. We want to be focused on this client too,” Lam says.
Although in terms of sales, AXA IM focuses on family offices because there has been a high level of growth in this sector in both Singapore and Hong Kong, Lam says once you get a SWF mandate, it could be a few hundred billion which would overtake whatever AUM it gets from family offices.
Lam is looking to increase AXA IM’s foothold in Taiwan. According to him, Taiwanese insurance companies have been big investors in US high yield products, an area AXA IM has expertise in. “Although investment patterns have changed and the Taiwanese are becoming fairly tactical, the majority of the investments are related to fixed income. They invest in high yield emerging market products, plain vanilla sovereign bonds and some alternatives. In addition, the Taiwanese clients have started to buy buildings, he says.
Geographically, Singapore and Hong Kong are key cities because of their wealth management and private banking prowess. AXA IM is also expanding into Thailand. “We cannot just have one or two focuses. We have a clear mandate and mindset and we know these are the key focuses,” Lam says of the additional geographies.
When asked which client set is likely to provide growth in the future, Lam demures. “Both retail and institutional clients are important. We are trying to have the right set up to cater for these clients and on AXA IM’s platform we have the right tackle for all these clients.”
Of course, the largest single client of AXA IM is the AXA group insurer itself. According to an AXA announcement, in 1QFY2020 ended March 31, AXA IM’s revenues grew by 11% to EUR0.3 billion ($0.47 billion), primarily from higher management fees as well as higher distribution and real estate transaction fees. Asset Management net inflows amounted to EUR8 billion, with inflows from Asian joint ventures (EUR4 billion), AXA Insurance companies (EUR2 billion) and third-party clients (EUR2 billion). After a strong start of the year, net inflows slowed down in March due to the market turmoil caused by the Covid-19 crisis. Average AUM excluding Asian JVs amounted to EUR716 billion, up 12% y-o-y, mainly driven by positive market effects and net inflows, says AXA.
In FY2019, AXA reported revenues of EUR103.5 billion, up 1% y-o-y, and underlying earnings of EUR6.5 billion, up 4% from a year ago. However, in line with European financial institutions which have deferred or cut dividends, AXA’s board of directors, at a meeting on June 2, has decided to reduce its dividend proposal from EUR1.43 per share to EUR0.73 per share, subject to approval by AXA’s shareholders at its AGM to to be held on June 30. E