Kurtosys spoke recently with Rob Bailey, head of wholesale distribution at AXA Investment Managers about the group’s long-term focus, the omnipresence of technology and capturing the interest of the next generation of investors.
The role of technology in asset management has evolved significantly over the past 20 years. What has struck you as your career has progressed?
If we cast our minds back to the turn of the century, “technology” really had its first moment in the spotlight; it was an investment sector in its own right. Compare that to today, where there is not a sector in the stock market that has not seen a significant impact from technology.
As a result, we have evolved our fund management process on the equity side to incorporate some core, long-term, investable themes. You can see the impact of technology on all of them: clean technology, with areas like water purification; clean air; and many other ways you can help the global environment – they all need the involvement of technology to a greater or lesser extent.
Even the utility companies, that have always been perceived as vastly different to the technology sector, have it embedded in them – how their switch gear works, pricing models, how they interact with their clients. Or in mining, from the technology used to blast the rocks in shale oil exploration and the method of drilling. The directional drills used now are so advanced that they would have been difficult to envisage 20 years ago.
The whole universe that we invest in has been permeated by technological advancements. You have to understand how companies are embracing this and how they are utilising that to try and establish who are going to be the long-term winners.
How is it influencing the way you communicate, as a business?
We’re going through a process of transformation. From the way we manage our systems internally, to communicating with our clients, through to how we investigate the companies in which we invest, tech touches every part of the business.
As an organisation, we recognise the need to be efficient but also the importance of getting information across in a timely fashion and in a fashion that clients can interpret and decipher.
To some extent that’s the challenge our clients have. They get bombarded with information from asset management groups so we’ve had to make our communication with them much more interesting, relevant and timely in order for them to actually want to read our content. From that, we want to engage our clients in debate about good and bad ideas, or where they should and shouldn’t be invested.
If you look in particular at the wholesale market, a much greater depth of research and information is now required from the client. Most large clients have their own research teams. Many clients will use research companies or consultants to help them compile their buy lists or recommended lists. All those researchers and databases need to be met with a substantial amount of information: portfolio, holdings, turnover, Sharpe ratios and sensitivity to the market… everything that you’d expect an analyst from a very in-depth organisation to want to study.
There are two sides to it: that ‘hard’ data and our thoughts and ideas.
Hard data transmission comes via websites; from the people requesting data to be sent to them from our factsheets and the like. But I think the role of the factsheet has changed. Everyone wants more detail than they provide, so they are really more of a starting point or an update. They are a bit like a simplified balance sheet, whereas the fund manager or other data can offer forward projections.
We like to engage in as many ways as possible with our clients, for example we run a monthly webcast where I sit down with one of the fund managers and we talk through their views, ideas and current thinking.
For non-clients, a factsheet may be used as a starting point to find out more, whereas if you are already invested in the fund, your needs may be different; you might seek a degree of comfort and reassurance, or a chance to clarify that the fund is still doing exactly what you want it to do.
We will also look at normal distribution channels, such as email communications or social media, where we put our top-line ideas up and invite people to visit the website to get a greater insight into particular thoughts and processes.
I believe that thirst for more data will only continue and we have to be open and transparent in delivering that.
And what about ideas that are non-product related? How do you achieve cut-through when people are so inundated with content?
Take our new website for example. Tomorrow Augmented is one of those places where we have a number of videos, articles and research papers. It’s a place where we can share thoughts and ideas – our own and those of other people we think are interesting and relevant.
That is also feeding into the types of events we run. Industry has evolved as regulation has and the whole industry has developed a different approach to its events. We see these as more about sharing ideas on themes about how the world is changing than about pitching a strategy.
What are some of those themes you’re exploring?
As long-term investors, we invest in companies because we think it has a really sustainable opportunity to grow its long-term earnings. While we are bottom-up stock pickers, there are a number of things happening in the world that help us see stocks in a broader context.
Take longevity. It’s a subject that has been spoken about for a considerable number of years. Because we are invested in this area, the people we get to talk to can share some really interesting information, such as a video we shot recently featuring Emeritus Professor Thomas Kirkwood, the Associate Dean for Ageing at Newcastle University. He talks about the concept that the increase in average life expectancy was for some time not driven by people necessarily living longer, but by a reduction in infant mortality. It is only in the last thirty years or so that people have really started living longer.
As we are living longer and healthier, we need to consider ‘healthspan’ as well as lifespan. People aren’t going to want to reverse that process, so that is a good example of a long-term, investable theme that is only moving in one direction.
What about fintech? How are you engaging with its rise in prominence?
There are several new initiatives, such as our recently formed strategic partnership with a Swedish company called Dreams. They offer a mobile app that will give us a platform to better understand the drivers behind the savings and investment habits and objectives of Millennials and Gen Z.
We carried out a broader end consumer behaviour survey towards the end of last year and this will help us build on some of those learnings. For instance, young investors are as concerned that their money does something positive as they are about returns.
The overwhelming feedback we got from young investors is that they would like to invest their money into something which would help find cures for diseases. This supports the thinking behind the Clean Economy Fund we launched last year which invests in areas that improve people’s environment.
[The fund manager] Amanda O’Toole refers to a map of air pollution in China and how the Chinese government has responded, trying to reduce the damage done by its air pollution.
It’s a fantastic long-term theme. If you’ve got a country the size of China that is investing in clean energy infrastructure, that’s going to create opportunities. This is another theme that is not going to go away.
You can see why the younger investors are interested – they are the ones who have to live on the planet for longer and are well educated in matters of the environment. It’s in everyone’s interests to want things to be more sustainable and the young people of today are so much better informed because of the instant and wide access to information that the internet has enabled.
What would you say are the three trends or behaviours or anything which you think will define investing in the short term, looking out a couple of years?
I think people will look for a shelter from some of the volatility. If you look at the macro situation, you’ve got all the challenges with the US/China trade war, the government lockdown, both of which can affect the US economy, causing a ripple effect around the world. As a result, I’d say our short-duration funds would offer a place of calmer waters, where the risk of volatility is lower.
I think there is a really interesting case to be made for UK equities right now, as a part of the market that investors have shied away from for nearly three years. It’s obviously dependent on some macro stability, but there’s probably value in that market.
But I think we’ll still be talking about Brexit in 10 years’ time. The impact of that won’t go away immediately but I do think there will be an opportunity at some stage.
Then the other thing for me is the continuation of these long-term themes; longevity, clean economy, the evolution of the technology markets, fintech. All these things offer great long-term, sustainable investment ideas because there is a clear need that these companies are meeting.