Rob Bailey considers himself to be an optimist, something he attributes to the nature of the role he has performed at AXA Investment Management (AXA IM) since 2007.
For the past 12 years, as head of wholesale for the UK market, Mr Bailey has needed to maintain a detailed understanding of the entire breadth of AXA IM’s offerings for prospective investors, and extol the virtues of its funds.
So far, his faith in its strategies remains undimmed by periods of historic political uncertainty and economic volatility. This positive outlook is not simply a consequence of the salesman-like quality of his role, but reflects his belief that investment fundamentals supersede any short to medium term wobbles caused by external domestic and international factors.
He asks Fundeye: “What do you think the word of the year was in 2019?”
According to AXA IM’s data science website Tomorrow: Augmented: it was macro.
It was the most used word in the investment industry across all of AXA’s literature, meetings, and conferences.
“So, there is clearly a real focus on macro at the moment,” he acknowledges. “But a lot of the stuff we do is fundamental proprietary research – it’s bottom-up. A lot of the macro stuff can have a really big impact on your returns in the short-term and some of it has a really big impact in the long term. Nevertheless, it is the long-term company growth opportunities that will provide the majority of returns to profits.”
Outlining AXA’s approach to investing in companies, he notes that in the first year, 70 percent of returns from equities are typically driven by margin expansion. Consequently, the emphasis in Mr Bailey’s mind, has to be on the opportunities over a five-to-ten-year period.
He explains: “We tend to buy companies thinking that long-term sustainable growth will drive returns. Over a ten- year period, 70 percent of your return is driven by revenue growth. So, the point for us is that we are long-term investors, looking for long-term sustainable business models with growth in earnings and we think that will deliver the outcome for clients at the end they are looking for – in both income and growth.”
This does not mean AXA IM is not cognisant of developing investment themes. Mr Bailey points to the importance of the growing middle class across developing economies and emerging markets, and the increased demand for clean energy in the future as being important factors that remain relevant regardless of electoral outcomes in Europe and North America.
Commenting on AXA’s thematic funds, he says: “You think about battery power, wind power and solar power, those issues won’t change due to political issues this year in those macro situations. There are many more examples which we use in our thematic philosophy for our thematic funds, where the themes are embedded. The ageing population in places like Japan and Western Europe is not going to change if Bernie Sanders wins an election.”
He is also prepared to admit when short-term events can enhance AXA IM’s position. Reflecting on the general election result in December, Mr Bailey argued that the arrival of certainty in the market was proving beneficial.
Pointing out that there has been a noticeable increase in risk-tolerance from clients, who are now a little more “risk-on” following the election result, he is pleased to see a shift towards undervalued UK equities and high alpha.
He says: “We are now seeing people invest in parts of the market like technology, where you tend to expect more volatility but higher returns.”
Mr Bailey states that overseas investors had previously been very reluctant to invest in the UK in the past three years as a consequence of fiscal uncertainty, which has also resulted in UK investors have been investing less domestically. This has led to many clients reducing their allocations post-Brexit vote.
He adds: “We have seen good elements of additional risk taking, with clients investing in some of our high alpha funds – like our technology fund and in some of our high-yield fixed income funds.
Contrasting the three-year period of uncertainty with more recent investment behaviour with previous, he notes that when investors feel slightly more confident about life, they are happy to look at the high-yield end of the market. That said, fundamental pressures in the UK economy such as low productivity remain, while in Mr Bailey’ mind, the main focus had to be on AXA IM maintaining a credible investment approach.
He concludes: “I have seen some of these blue-sky presentations that people give on what the world is going to look like in 20 years’ time. I always smile when that happens because I remember Space 1999 and we still don’t live on the moon.”
