Emma Wall: Hello and welcome to the Morningstar series, 'Why should I invest with you?' I’m Emma Wall and joining me is Richard Marwood, manager of the AXA Distribution Fund.
Richard Marwood: Good morning, Emma. Thank you for having me in today.
Wall: So looking then at the fund, AXA Distribution doesn’t give much away in the name. What exactly is the remit?
Marwood: Well, the remit of the fund is – well, firstly I should say which Investment Management Association group it’s in. It’s in the IMA 20%-60% in equities area, the old cautious managed space. What we’re trying to do, we’re trying to give investors some exposure to the equity market with damping down the volatility that you’d have with 100% equity fund.
Wall: So smoothing those returns?
Marwood: That’s the idea. The way that we do that is that we have typically between 50% and 60% of the portfolio in U.K. equities. Put that alongside, that will own gilts and primarily index-linked gilts, and that damps down the overall volatility.
Wall: Gilts, though, not in a great place to be over the last couple of years. How are you positioning the fund at the moment?
Marwood: We’re sticking with the same strategy, and I agree with your comments that the gilts are not looking particularly attractive. Certainly conventional gilts look very expensive indeed and we see very little attraction in those at all. However, index-linked gilts, although they are still quite expensive, we like the fact that they are proofed against inflation. They’re trading a little bit less expensively than they have been, and their real yields of around nil to maybe small positives on parts of the curve now and that makes them a little bit more interesting. They’re there to do the job of damping down the overall portfolio, as well as giving some inflation protection.
Wall: Looking at your position in equities then, what are you holding at the moment? What are you thinking at the moment?
Marwood: The big thought behind the equities is actually rather conversely to what people normally think. That’s the place for income at the moment. Bonds aren’t offering much yield, whereas a lot of the equities are giving very, very good dividend yields. So we tend to focus on bigger companies and definitely businesses that have yields. If you look through the list of holdings, it will be a lot of the larger FTSE 100 companies, household names, lots of the investors will know these companies. It’s the Glaxos, it’s the National Grids, it’s the Vodafones, it’s the HSBCs. It’s not trying to do anything exciting, but we’re just trying to get a very stable portfolio for the long term.
Wall: You’ve mentioned income and you’ve mentioned inflation. Are they the challenges facing investors in the coming years?
Marwood: I think particularly for cautious investors, inflation is a problem, because if you’re a naturally cautious investor, you’re most comfortable probably sitting in cash. However, at the moment, cash can’t keep up with inflation, which is a big problem, and nor can you actually achieve above-inflation returns in most of the gilt market. So actually you need to be in equities to have a chance of outstripping inflation. But, unfortunately, cautious investors don’t necessarily want the volatility. So that’s really where a fund like this comes in. It gives you some exposure to equities to try and beat inflation, but it smoothes the ride for maybe more cautious investors.
Wall: Getting the blend right then?
Marwood: That’s the idea.
Wall: Richard, thank you very much.
Marwood: Thank you, Emma.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
