Unlocking the potential of UK mid cap companies

This communication is for investment professionals only and must not be relied

upon by retail clients. Circulation must be restricted accordingly.

Chris St John, Fund Manager of the AXA Framlington UK Mid Cap Fund

17582/CR50548

Biography

Chris joined AXA Framlington in 2005. He is the lead manager for the AXA Framlington UK Mid Cap Fund

and several pension funds.

He started his career at PricewaterhouseCoopers in 1995 as part of the London Middle Market Business

Advisory Service. After a short period in the Corporate and International Tax department, he moved to

Corporate Finance. He subsequently joined ISIS (which later became Foreign & Colonial) where he

progressed from an equity analyst onto becoming a lead Fund Manager on four institutional FTSE Small Cap

Funds. In 2003, he was promoted to lead Fund Manager of the UK Small Cap retail Funds.

Chris graduated from Durham University with an honours degree in Philosophy and Psychology in 1995. He

qualified as a Chartered Accountant in 1998.

Chris St John

Fund Manager

Source: AXA IM as at 31/06/2013.

1 17582/CR50548

AXA Framlington UK Mid Cap Fund performance

Source: Graph: Lipper as at 31/07/2013, Net income, Bid to Bid, net fees. Fund, IMA & Quartile: Lipper, Net Income, Bid to Bid. Net Fees. *AXA Framlington

UK Mid Cap Fund Institutional Share Class. **Rank vs IMA UK All Companies. Z institutional share class used in the IMA peer group. Inception date

04/03/2011. NB: Past performance is not a guide to future performance.

Strong outperformance relative to comparative benchmark

Performance since inception 04/03/2011 (net)

2 17582/CR50800

YTD 1yrSince

inception

AXA Framlington UK Mid Cap Net* 30.12 45.88 57.70

FTSE 250 Mid (ex IT) TR 23.61 40.25 39.75

Net performance relative to comparative benchmark 6.51 5.64 17.95

Rank** 7/268 16/267 8/260

Quartile 1 1 1

0

50

100

150

200

Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13

AXA Framlington UK Mid Cap Z Acc IMA UK All Companies

FTSE 250 Index – Strong performance

… this is an asset class worth considering

Source: Lipper, percentage growth total return. Data shown from 31/12/1999 to 31/07/2013. NB: Past performance is not a guide to future

performance.

3 17582/CR50800

0

50

100

150

200

250

300

350

400

450

500

Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13

FTSE All-Share TR

FTSE 250 Mid (X It) TR

MSCI World TR GBP

FTSE A British Govt All Stocks TR

207.87 FTSE All-Share TR

448.66 FTSE 250 Mid (X It) TR

210.86 MSCI World TR GBP

232.80 FTSE A British Govt All Stocks TR

1970

19711972

1973

1974

1975

1976

19771978

1979

1980

19811982 1983

198419851986

198719881989

1990

1991

19921993

199419951996

1997

1998 1999

20002001

2002

R2 = 0.7525

-5

0

5

10

15

20

4 6 8 10 12 14 16 18 20 22 24 26 28

Starting period PER (x )

Av erage annual 10-y ear real

4 6 8 10 12 14 16 18 20 22 24 26 28

20

15

10

5

0

-5

Avera

ge a

nn

ual 10-y

ear

real re

turn

s (

%)

Starting period P/E

Equity valuation remains attractive relative to history

Source: Oriel Securities, January 2013. NB: Past performance is not a guide to future performance.

1974

1999

4 17582/CR50548

Why might this be?

Dynamic changing index

Market cap range £275m to £4.35bn

Market leaders

– Global

– Domestic

Less intense regulatory spotlight

Acquisition targets

Investors underestimate change and earnings growth

Strong balance sheets/beneficiaries of Cap ex

Potential long term attractions

5 17582/CR50548

Valuations attractive

FTSE 250 ex IT UK PE 12M Forward earnings 1998–2013

Source: Citigroup as at 28/08/2013. NB: Past performance is not a guide to future performance.

Valuations supportive of continued absolute returns

6 17582/CR50800

6

8

10

12

14

16

18

20

22

Aug-98 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13

FTSE 250 12m fwd PE Average

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Net Upgrades/(Downgrades) FTSE 250

Realistic earnings expectations

24 months of net downgrades

2012/2013 IBES Consensus PAT* growth of 3.8% seems reasonable (2013//2014 PAT Growth 7.1%)

2012/2013 IBES Consensus median PAT growth of 7%

Bottom up earnings forecasts are realistic in many cases

Source: Chart: Citigroup as at 31/07/2013. *Profit after Tax.

7 17582/CR50800

Diversification – geography

Source: FactSet as at 31/01/2013.

Split of sales generated by FTSE 250 companies

UK47%

North America

14%

Europe17%

Rest of the World

22%

Access to both domestic and global growth opportunities

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0

5

10

15

20

25

30

Ind

ustr

ials

Oth

er

Fin

ancia

ls

Consu

mer

Serv

ices

Te

chnolo

gy

Util

itie

s

Consu

mer

Go

od

s

Te

lecom

s

Basic

Ma

terials

Health

Care

Ban

ks

Oil

& G

as

FTSE 250xIT FTSE 100

Diversification – sector

Source: AXA IM as at 31/07/2013.

Sector breakdown of FTSE 250 ex IT vs FTSE 100

FTSE 250 ex IT

%

FTSE 100

%

Largest stock weight 1.52 8.23

Top ten stocks 13.43 46.71

A broad industry exposure

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0

1

2

3

4

5

6

7

8

9

0

1

2

3

4

5

6

7

8

9

10

CapEx as % of Sales (LHS) Net Debt/EBITDA (RHS)

Strong balance sheets/beneficiaries of CapEx

Source: Citigroup as at 27/06/2013.

Cash piles have grown

during downturn

presenting value

accretive

– organic growth

– dividend growth

– share buy backs

– Special dividends

(Spirax Sarco, ITV,

Elementis,

MoneySupermarket,

Victrex)

Low net debt and depressed capex bode well for long term

estimated

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M&A targets – FTSE 250 Earnings yield vs UK BBB Corp bond yield

Source: Citigroup as at 27/08/2013.

M&A, CapEx, buy backs, dividends supported

11 17582/CR50800

3

4

5

6

7

8

9

10

11

12

13

14

15

16

Aug 98 Aug 99 Aug 00 Aug 01 Aug 02 Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Aug 11 Aug 12 Aug 13

FTSE 250 Earnings Yield UK BBB Corp Bond Yield

There is always opportunity

Number of stocks in the FTSE 250 with total shareholder return in excess of 20% between

2000 and 2013

73

30

17

147

102

119

131

40

10

153

124

25

129

68

0

20

40

60

80

100

120

140

160

180

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

YTD

No

. o

f c

om

pa

nie

s

Source: AXA IM as at 26/06/2013.

Stockpicking paradise

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AXA Framlington UK Mid Cap Unit Trust

Name : AXA Framlington UK Mid Cap Fund

Fund manager : Chris St John

Launch date : 4 March 2011

Fund size : £23.3m

Number of holdings : 72

Fund structure : Unit Trust

Management fee : 0.75% (Institutional Class); £100k minimum investment

Comparative benchmark : FTSE 250 ex IT (used as a point of reference)

Parameters : Unconstrained UK Medium Capitalisation Portfolio

Exposure to FTSE 250 ex IT normally no less than 70%

Exposure to FTSE 100 normally no more than 15%

Typically 60-80 holdings

Normally no greater than 4% stock holding size

Source: AXA IM as at 31/07/2013.

Actively managed UK Mid Cap fund

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Strategy / thematic views – economic tailwind rather than headwind

Supply side constraint

Self help/management change

UK survivorship

Service, service, service

Technological change

Essentra

Ashtead

Sports Direct

Spirax-Sarco

Rightmove

Favour market leading growth companies

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By Industry (%)

Source: FactSet as at 31/07/2013. * As at 03/09/2013. Comparative benchmark: FTSE 250 ex IT.

AXA Framlington UK Mid Cap Fund

Portfolio as at 31/07/2013

Top 10 holdings

FTSE 250 weighting = 78.7%*

Fund

%

Ashtead Group plc 2.38

Sports Direct International plc 2.25

Rightmove plc 2.02

Essentra plc 1.95

ITV plc 1.93

Senior plc 1.79

Howden Joinery Group PLC 1.76

St. James's Place Plc 1.66

Travis Perkins plc 1.64

Pace plc 1.53

Oil & Gas3%

Basic Materials2%

Industrials29%

Consumer Goods

3%

Health Care1%

Consumer Services

20%

Telecom Services

2%

Financials12%

Information Technology

7%

Utilities0%

Cash21%

15 17582/CR50800

Conclusion

FTSE 250 attractive asset class with enduring characteristics

Valuation not excessive in context of history

Starting dividend yield of circa 3%

Earnings growth realistic

Global GDP growth supportive of FTSE 250 companies

AXA Framlington UK Mid Cap Fund

Source: AXA IM as at 30/06/2013.

16 17582/CR50800

Important information

This communication is intended for Investment Professional use only and should not be relied upon by retail clients. Circulation must

be restricted accordingly. Any reproduction of this information, in whole or in part, is prohibited.

This communication does not constitute an offer to sell or buy any units in the Fund. Information relating to investments is based on research

and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other

members of the AXA Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no

responsibility is accepted for errors and omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter

into any investment transactions.

This communication should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA investment service or

product and is provided to you for information purposes only. The views expressed do not constitute investment advice and do not necessarily

represent the views of any company within the AXA Investment Managers Group and may be subject to change without notice. No

representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of

the information contained herein.

Information relating to investments may have been based on research and analysis undertaken or procured by AXA Framlington for its own

purposes and may have been made available to other expertises within the AXA Investment Managers Group, who in turn may have acted upon

it. Information in this document may be updated from time to time and may vary from previous or future published versions of this document.

Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not

get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer

markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk. The price of units and the

income from them can go down as well as up and investors may not get back the amount originally invested. An initial charge is usually made

when you purchase units. Your investment should be for the medium to long term i.e. typically 5-10 years. Changes in exchange rates will affect

the value of trust investments overseas.

AXA Framlington is an expertise of AXA Investment Managers UK Limited. Issued by AXA Investment Managers UK Limited which is authorised

and regulated by the Financial Conduct Authority. Registered in England and Wales No: 01431068 Registered Office: 7 Newgate Street, London

EC1A 7NX. Telephone calls may be recorded for quality assurance purposes.

17 17582/CR50548