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We met with the manager, Charles Firmin-Didot, as performance has disappointed since the fund launched last February.
The manager’s philosophy is to invest in companies owned and managed by entrepreneurs. Ideally they will have a large
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The manager also looks at more traditional factors such as companies with low debt that are trading on attractive valuations. Investment decisions are not based on an economic viewpoint, only on which companies show the most promise.
Sometimes entrepreneurs own and manage more than one company. In these instances Charles Firmin-Didot will look to invest in their holding companies. These are parent companies which own different subsidiaries. These subsidiaries are also often listed on the market. The holding company can provide exposure to all the companies the entrepreneur manages. In addition the entrepreneur will normally have the majority of their own wealth invested here, and therefore has a vested interest for it to perform. About 35% of the portfolio is currently invested in holding companies.
This exposure accounts for a significant portion of the fund’s under performance against the sector since launch. Holding companies can behave like investment trusts; they can trade at a discount or a premium to the value of their underlying parts. Recently market sentiment has been negative and this has resulted in falls across the market. Some shares have fallen a long way despite there being no negative news specific to that company. Entrepreneurial companies have suffered but in many cases holding companies have fallen further despite nothing changing with the underlying company.
The fund is also predominantly invested in smaller and medium-sized companies. Entrepreneurs tend to be found in these areas of the market rather than in larger firms but small and medium-sized firms have been hit harder in the market falls.
Currently about 20% of the fund is invested in Japan. There are no rules about which countries the fund can invest in; this is simply a result of where the manager finds the best opportunities. The Japanese market has suffered over the last year, more so than other global markets, and naturally the fund has been affected.
Charles Firmin-Didot sees the recent volatility as an opportunity to invest. As many of the holding companies are now trading at a significant discount to the sum of their parts he is taking the opportunity to top up his holdings. If share prices rise and holding company discounts narrow investors in this fund could benefit twice, but remember the opposite is also true.
He has noticed that entrepreneurs have been buying shares in their holding companies – usually a sign that they believe current prices represent good value. Charles Firmin-Didot has also recently invested some of his own money in this fund, which we view positively. Recently performance has improved and the fund currently ranks highly in its sector over the last few months.
As far as we are aware there are no other fund managers who adopt this investment philosophy. We believe the AXA IM Talents Fund could make a good diversifier for many portfolios but as performance has shown investors should expect volatility. Despite the fund under performing since launch we continue to believe this fund makes an interesting proposition and shows potential for the longer term. We are happy for the fund to remain part of the Wealth 150, a list of our favourite funds in each sector.
» Key Features of the AXA IM Talents Fund
Fund research is provided by Hargreaves Lansdown. Hargreaves Lansdown is an independent broker offering unit trust, stockbroking and other pension and investment services. No news or research item is a personal recommendation to deal.