Emma Wall: Hello, and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Dan Harlow, Manager of the AXA Framlington American Growth Fund.
Hi, Dan.
Dan Harlow: Good Morning.
Wall: So your fund did pretty well last year, 8.9% in 2015, not too bad when you look across the rest of the world and it was flat or negative for number of the major markets. It is less though than you got the year before which I think was around 16%, and the year before that which you've returned a massive of 30% to investors.
Is this just a reflective of the market cycle that we're in and does that mean that we're going to expect less growth again this year?
Harlow: I think we are now seven years into the recovery and I think the returns last year speak to the multiple expansion, the valuation expansion, we've seen in the U.S. market over those years. Certainly from an earnings perspective, last year it was challenged, partly due to some of the slowdown in the industrial and energy sectors. So, we're pleased with our return and I think that speaks to how we think and how we work.
Wall: Of course, U.S. is the market that everyone loves to bash. You must feel like the kid who doesn't get picked in the playground at the moment. This time last year everyone said, sell out of U.S. equities, but actually your performance suggests that people called that too early.
Here, we are again at the beginning of the year where people make predictions and people are again saying U.S. equities won't perform. Are they calling it too early again?
Harlow: Well, I think it's how you invest and how you think about the market that matters. We are pretty differentiated in how we work. We're focused on identifying high-quality growth companies and in the U.S., we're very lucky.
We have a very reach universe of names and I think history is proven that in times of slow or slowing growth, growth stocks become more appealing there's supply-demand. People are prepared to pay that little bit more for high-quality reliable growth. So, in an environment where earnings growth is going to be hard to achieve next year or in 2016, we remain optimistic that with good quality stock picking we can deliver absolute returns for investors.
Wall: And of course, we should highlight that this is not an S&P 500 like fund. Is it? This is growth you're investing across the market cap. With that in mind, where are you finding the great opportunities for this year?
Harlow: So, you're absolutely right, we're growth focused and we're looking for long-term secular growth story, so we do have the bias towards midcap names and we do have the bias towards healthcare technology and consumer discretionary; areas where we find plenty of innovation. If you innovate successfully, you create opportunity you can drive growth.
So, we continue to be able to see good quality healthcare technology names in particular, valuations which aren't overly challenging given we feel the quality medium term growth prospects for those businesses.
Wall: And presumably they aren't affected by the – most people say – four Fed rate rises that we're expecting in 2016 or is that something that's already priced in?
Harlow: These names really aren't too concerned what we think about what the Fed does. These are companies that have greater control of their own destiny, perhaps the healthcare, the biotechnology company with visibility on its launches this year and into next year, the label expansion, the geographic expansion. So, something like, a Celgene we own, we like, the company's got confidence in 20% growth per year through to 2020 and 18 times 2016 numbers we feel that's quite attractive.
Wall: Of course those sorts of names can be a little bit volatile those sort of techie, biotech names. Is that something that you're seeing in the share price performance?
Harlow: We certainly have seen a sell-off in the healthcare sector in the back half of last year and certainly the early days of 2016. There are concerns around the pricing environment in an election year, and clearly healthcare drug pricing in the U.S. is a highly controversial and motive subject, but we feel that is creating opportunity to sell-off and some of those names is creating opportunity that we are looking to selectively take advantage of.
Wall: Dan, thank you very much.
Harlow: Pleasure.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
