Julian Thompson has increased the Axa Framlington emerging markets fund’s exposure to Russia and Mexico since he was appointed portfolio manager in December.
Thompson joined Axa from Threadneedle, taking over the management of the fund from Mark Beveridge. He plans to double the size of the emerging markets team by the end of this year.
He has increased the fund’s small weighting in Russia, partly through the purchase of two food retailers.
The fund has moved from one holding in the country, which Thompson sees as a market with great growth prospects, to four, although the weighting is still only 0.7 per cent of the £237m fund’s assets.
The portfolio is most overweight in Mexico, with a 5.4 per cent holding. Thompson describes the country as an interesting bottom-up stockpicking environment. The weighting is likely to be bolstered by additional Mexican equities over the long term.
Thompson considers Mexico an under-rated market. The country’s GDP grew at just over 1.25 per cent in the final quarter of 2010, making the economy larger than before the financial crisis hit in 2008.
The portfolio’s exposure to Mexico is largely through domestically focused consumption sectors such as food retailers and telecoms. The fund recently acquired a holding in the Mexican Stock Exchange and there are plans to invest in a further food retailer.
Thompson has increased the fund’s sector weighting in consumer discretionary and consumer staples.
He has also added to the fund’s weighting in information technology in preparation for the development of a new product cycle – signalled by innovations such as the iPad and smartphones – which places the emphasis on the manufacturing hardware.
Delta Electronics, a company recently added to the portfolio, accounts for the production of about 80% of global power supply cable and is increasingly moving into server production.
Thompson has reduced the fund’s weighting in Egypt, Indonesia and Turkey.
He has also cut its exposure to Asia, and to China in particular, and says he intends to continue to withdraw money from the region.
The manager says he is not a great believer in China’s ability to maintain a high growth rate.
China has invested a great deal of capital in infrastructure projects in past years, but these produce little return owing to poor cash flows, he says.
However, he remains confident that fears of an emerging markets bubble are unfounded.
He describes the situation as sustainable and says that most emerging market economies will be able to make a “soft landing”.