David Shaw is co-head of global equities at AXA Investment Managers (AXA IM). He also manages the Global Sustainable Distribution Fund, co-manages the Global Sustainable Managed Fund and is deputy on the American Growth Fund. He joined AXA in 2016 from Aerion Fund Management where he worked from the year 2000. Before that he worked at NPI, NatWest Investment Management and United Friendly Asset Management. He was educated at City University and has a BSc (Hons) in electronic engineering.
AXA IM is part of France’s AXA Group, a global leader in insurance and asset management with assets under management of $916 bn. AXA IM traces its roots back to 1994 and today is present in 22 offices in 18 countries. The firm is an active, long-term and global multi-asset investor. AXA’s primary equity management operations are in Paris and London. The London office runs a number of global equity funds, including a number of thematic and geographic funds.
What are your equity assets under management in London and Paris?
We have $61 bn in equities in Paris, $36 bn in London.
How do London and Paris co-operate?
Paris is predominantly European equities, the global small-cap team, the convertibles team and the multi-asset team. London manages sector-specific funds such as technology, healthcare, thematic and regional funds such as the American Growth Fund, and a number of global funds. Many of the sector-specialist funds are quite US-centric given their technology/healthcare skew. If you note that more than 60 percent of the MSCI is US, then we have higher exposure to US equities. But I wouldn’t want to put people off visiting Paris. We do collaborate and often share ideas with the global small-cap team in Paris, for example.
In terms of collaboration, we have two formal meetings a week – one with a regional focus and the other more thematic/sector-specific. Teams from London, Paris and Hong Kong share thoughts. We do a good job of getting the London and Paris teams to collaborate. Names from the American Growth Fund may also be held in the global small-cap fund.
Which screens do you use?
Fund managers have a lot of personal autonomy. We tend to look for quality growth. Some strategies are more Garp while others are out-and-out growth. We hold a few names that are still unprofitable but working toward it – companies with innovative, breakthrough technologies.
Do you use benchmarks?
Yes – most strategies have an appropriate benchmark. We are benchmark-aware, not benchmark-driven.
What’s your active share?
Most portfolios hold 40-60 stocks, so our active share ranges between 60 percent and 70 percent depending on the fund.
What’s your minimum market cap and your average and largest position?
Around $1 bn in market cap – the small-cap team’s would be lower. We would have exposure to Apple even if it is underweight for our US funds so that would be our largest holding without being an active bet. A typical active weight is 100 basis points above the benchmark.
What’s your average length of holding?
It’s four or five years plus. A couple of names in my US portfolio we’ve held for six or seven years. We buy and hold where companies are executing well. We want to be long-term investors, and invest in companies that grow and develop but fund managers may trade around a position so will trim if sentiment is overly optimistic.
What are your geographic and sector allocations?
More than 60 percent in the US. A lot of the global/specialist strategies are heavily exposed to the US, such as our healthcare and technology funds. We pay attention to sector allocation but look for good, organic, innovative, growth names. Some sectors such as healthcare, technology and consumer discretionary in the US are good places for innovation and new ideas. Sectors where you don’t see much innovation and growth are, for example, financials, utilities and energy, and we are typically underweight these sectors.
How does the team split sectors and geographies?
We have our technology and healthcare specialists, but fund managers are attracted to certain sectors by the nature of their investment style. Steve Kelly and I tend to focus our attention on healthcare, technology and consumer.
Around 61 percent of assets are ESG-integrated, but how is ESG integrated into the investment process?
We have a large responsible investment (RI) team, more than 30 people, which supports the whole business, not just equities. In addition, there is a team of seven ESG & impact analysts who work more closely with the equity team. We have an impact fund range as well as dedicated ESG funds. The sustainable funds I’m involved in all have a high degree of ESG integration. They look for companies that can deliver sustainable opportunities including environmental or social progress. As growth investors, we are looking for businesses of the future and they normally align well with ESG. Younger businesses take those responsibilities more seriously.
Can you discuss some holdings and why you invested?
Mondelez – bought it for my US funds in 2016 and still hold it. The weighting has increased as my confidence in the growth dynamics and management has grown over time. When I first bought it, I didn’t have much exposure to consumer staples. It was one of the better food producers, with faster-growing categories. It was growing more slowly than its overall category due to a focus on margins that was stifling growth. The management transition of 2018 has gone well, and Dirk [Van de Put, CEO] and Luca [Zaramella, CFO] were very early in transitioning from a cost focus to looking for more growth. They also moved away from the traditional US-centralized Chicago HQ to a more decentralized, localized management style where local offices have a say on sales’ strategies and product development. Growth is now in line, and it has have managed to keep within its margin framework.
Food producers can face challenges and our RI team has been a huge help in this regard. As a firm, we wanted to learn more about deforestation so our RI team had a meeting with Mondelez about how it ensures its suppliers are not involved in deforestation. Overall, we felt Mondelez is ahead of its peers. While we would like it to do more, it is good to have the back-up of the RI team, which came away with a good outcome from its engagement.
NextEra – the only US utility we own. We own it in our global portfolios, as well as some US funds. It is forward-thinking and has delivered the best organic growth among US utilities, partly due to its innovative early adoption of renewable energy. Being based in Florida helps (population growth). NextEra has more organic growth than most US utilities. It is also very well positioned due to its renewables exposure in terms of ESG. Its target is ‘real zero’ (by 2045): 100 percent renewable energy generation – and it is well on the way to achieving it.
Chipotle – my colleague Steve first invested in it more than a decade ago for the American Growth Fund. It has a combination of organic growth via new store expansion and menu innovation. It has a simple menu so it can add in one or two new ideas. It has some of the best unit dynamics in the quick-service industry in the US. Covid gave it the opportunity to develop its digital offering in online or takeaway and it has been very successful there. The year 2023 sales are forecast to be 80 percent higher than in 2019. The firm has managed to grow very strongly for the last three to four years but there are still some things it can do better. Productivity is probably not as high as should be as it has a number of new hires who take time to get faster at making burritos, for example.
Dexcom – another holding of more than 10 years. Great example of a holding that started with one team and other teams have become interested. It started out as a holding in the American Growth Fund and is now widely held in our thematic funds, healthcare funds and global funds, and the convertible team owns the convertible, so cross-pollination of ideas leads to more teams owning it. Holdings of names that execute on the long-term growth strategy do snowball as fund managers hear the story and they become major holdings across the firm. Dexcom is the creator of the continuous glucose monitoring industry. Innovation keeps coming, making the product smaller, making the sensor last longer, and so on. It improves health outcomes and users are big fans.
Chart Industries – a newer name we recently added. I met the company properly in November 2021. The business has changed in recent years. Its core business and expertise are in gas compression and liquification technology. In the last three to four years, management has transitioned the business away from the legacy liquefied natural gas business and is growing in hydrogen, biomass, carbon capture and storage – from fossils fuels to fuels of the future. We originally added it to the US funds and now it is in convertibles and global small caps as well because we’ve spoken to other teams about it.
Do you like to meet management?
Yes, but it can be hard work to carve out time to prepare for a meeting and we do like to do our homework. We like to check market expectations and gain comfort from management as we are looking to be long-term holders. We want a company to meet/exceed long-term guidance. We want to understand what levers a company has if things don’t go as expected.
What’s your preferred method of meeting management?
One-to-ones generally – with a popular name you could have four or five portfolio managers joining the meeting from AXA IM. Group meetings can be productive, though, as sometimes another investor takes a different angle you hadn’t appreciated. We prefer face-to-face meetings if possible. And we like companies to be consistent. It is frustrating if a company comes over and starts to build interest and then doesn’t come back. Year one, our US specialist may see it; year two, a chance to get the company in front of a few more colleagues. Just because we are an existing holder, it doesn’t mean the position couldn’t be increased (by other funds internally).
Are there any companies that stand out as particularly good at IR, and why?
Tractor Supply – it’s a fairly recent addition to both my Garp US portfolio and the Global Sustainable Fund. It is good at explaining the business mix and the cyclicality. Mary Winn Pilkington, senior vice president of investor relations and public relations, does a good job of explaining the different parts of the business and management is quite forthcoming.
Brunswick – we like how IR tries to frame the business. Some look at its history and how it performed during the global financial crisis, but the business is now very different as the growth in its Mercury engines business has reduced its cyclicality. It has downsized the pure boat business, so that is now only 30 percent of revenues. Engines and accessories are the lion’s share and are more a repeat business, so less cyclical.
Why should companies meet you?
We are genuinely long term and positions can be increased across numerous funds, even convertibles.
What are the major changes you’ve seen during your tenure in investment management?
Information flow has increased massively, in both detail and complexity. But the fundamentals remain the same: if you buy a company with good organic, innovative ideas you tend to get rewarded. And you have to keep evolving and building on skills learned elsewhere.
Gill Newton is a partner at Phoenix-IR, an independent IR consulting firm
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