The fund aims for growth by investing in small and medium size European companies with an above average performance in human capital management. Axa describes human capital management as the productive skills and technical knowledge embodied in labour, which can mean job creation, training and reward systems.
Fund manager Jean-Marc Maringe believes these things can creates competitive advantages for companies and investors they improve productivity in companies when pricing power is weak.
Maringe and his team have a 10-year track record in identifying investment opportunities using human capital management performance through a mandate for a corporate client. When managing the new fund, they will draw on a range of external research sources and in-house resources including 24 portfolio managers and eight members of the responsible investment team.
Axa’s dedicated Responsible Investment team has developed a model that screens companies on human capital criteria and assists the management team in spotting potential investment opportunities.
Axa says increases in productivity are a source of future profitability and sustainable growth, and human capital management is one of the drivers for this. However, the company feels that the market mis-prices reward and risk related to human capital management because people such chief executives and investment analyst tend not to know how to value or manage it well.
It says market efficiency would be improved by better corporate reporting of human capital management performance, allowing analysts to take this into account.
When selecting stocks the team carries out an initial screening process, removing tobacco and defence companies. Of the remaining stocks they focus on the quality of the business model, earnings, cash flow generation, valuation and stock momentum.
The human capital management filter is then applied. This is where Axa’s RI team gives each company a score based on quality of working conditions, career development and training employment growth. The RI team may also accept companies that do not fully meet the required score, but who are improving.
A 70 to 80-stock portfolio is built from the resulting shortlist by making sector and geographical allocations based on macroeconomic trends, sector issues and other themes.
This fund may appeal to advisers looking for a European fund which takes a different approach to stock selection that reflect wider ethical concerns that companies should treat the environment and their staff well.
However, the Axa team concedes that human capital management can be difficult to measure and that the right information is not always available.