Hit on high growth via AXA Framlington Global Technology

One way to tap into this potential growth is AXA Framlington Global Technology Fund (GB00B4W52V57), which has been run by Jeremy Gleeson since 2007. He is supported by deputy managers Tom Riley and Stephen Kelly, and AXA Investment Managers' wider investment team of regional and sector specialists. The fund's managers aim for growth over the long term by investing in technology companies from around the world that research, design and develop new technologies. The focus on new technology companies often leads them to smaller companies, so the fund has a small and mid-cap bias. The fund typically holds between 55 and 75 stocks, and as of 28 June had 66 holdings.

The fund's managers select stocks via a growth at a reasonable price (Garp) approach. Garp investing involves looking for companies that have consistent earnings growth above broad market levels and which seem to be trading at reasonable valuations. Selecting holdings via this method helps to avoid the extremes of growth and value investing.

They begin by identifying growth themes in the technology sector, in particular, ones that look as though they have potential for the foreseeable future. This is to avoid chasing niches or fads. An example of a theme they have identified is technologies that can improve efficiency, and make life easier for consumers and businesses.

They then seek to get exposure to these themes via companies with strong management teams, dominant market positions, attractive valuations, pricing power and the potential for higher earnings. They do not invest in lossmaking and highly indebted companies.

The fund's managers do not construct the fund's portfolio with reference to any benchmark, and when they first invest in a company it does not account for more than 1.5 per cent of the fund's assets. 

This approach has worked well: AXA Framlington Global Technology has outperformed its benchmark, MSCI World Information Technology index, and the Investment Association (IA) Technology and Telecommunications sector average, over three, five and 10 years. 

But investing in a single-sector fund is high risk because it can only invest in that area. If the sector it invests in is not doing well, the fund's manager cannot allocate away to other sectors, as would be possible for the manager of a broader fund. AXA Framlington Global Technology is also highly exposed to US equities, in which it had 85.62 per cent of its assets as of 28 June. This is generally the case with technology funds because so many technology companies are listed in the US. And US equities are, arguably, on high valuations, which can be an indication that the market is expensive, doesn't have much further to run and could be about to embark on a downward trend. 

[See the big theme in the issue of 26 July for more on US equities]

However, the fund's team has a strong sell discipline and an investment analytics team constantly monitors its risk, which helps to mitigate the risk of high valuations. Before the fund's managers add an investment to the fund, this team weighs up its growth potential against its potential risk. They also try to identify market and stock-specific risks, and work with the fund's managers to remove unintended risk exposures. They also provide market analytics to highlight trends that could affect the fund's investments.

So if you have a long-term investment horizon and can hold this fund for at least five years, and a high risk appetite, AXA Framlington Global Technology could be a good way to get exposure to the sector. Buy. ZB

AXA Framlington Global Technology (GB00B4W52V57)

Source: Morningstar as at 30 July 2019, *AXA Investment Managers

Performance

Source: FE Analytics as at 30 July 2019

Top 10 holdings (%)

Source: AXA Framlington as at 28 June 2019

Sector breakdown (%)

Source: AXA Framlington as at 28 June 2019