The AXA Framlington UK Mid Cap fund is one of the UKs best performing equity funds. Over the past five years, the fund has returned a total of 139.2% compared to 71.1% for the UK All Companies Index.
Chris St John, who has managed the fund since 2011, knows how to pick small and mid-cap growth stocks. His equity picks over the years have helped the fund achieve these lofty gains, although there has also been a healthy dose of volatility along the way.
Still, despite the volatility, over the long-term the strategy has clearly yielded results. So, which companies is the AXA Framlington UK Mid Cap betting on right now?
Profits from plastic
The funds top holding, coming in at 3.4% of the equity portfolio, is RPC Group (LSE: RPC). RPC is plastics packaging business, a relatively boring business that flies under the radar of most investors.
RPCs business may be boring, but the company is extremely good at it. Since 31 March 2012, the end of the companys 2012 financial year, revenue has expanded from 1.1bn to 1.6bn. Pre-tax profit has grown by around a third over the same period and earnings per share have risen from 31p to 43.3p.
Next year RPCs growth is expected to take off following yesterdays news of two acquisitions, which are set to transform the business.
First off RPC is buying ESE World B.V., for a consideration of 262m. ESE is Europes largest temporary waste storage solutions provider, with targeted revenues of 200m for 2016. The second acquisition is Astrapak, a leading South African manufacturer of rigid plastic packaging products and components. RPC is paying 1,370m Rand for the business (around 79m).
After these acquisitions, City analysts are now expecting RPC to report earnings per share growth of 39% for the financial year ending 31 March 2017, with earnings per share growth of 14% inthe year after. Based on these figures, shares in RPC look undervalued to me. Specifically, the shares are currently trading at a forward P/E multiple of 17.5 and a PEG ratio of 0.4. A PEG ratio of less than one indicates the shares in question may offer growth at a reasonable price.
Growth at a reasonable price
Another of the AXAs funds top holdings is online payments processor Paysafe (LSE: PAYS). Shares in Paysafe lost more than 30% of their value at one point earlier this week, when US firm Spotlight Research issued a damning report on the company claiming the business was facilitating illegal gambling in China and faces material risks from regulatory action. The research outfit also claimed that up to 50% of Paysafes revenues were in danger. Paysafes management has respondedto these allegations by stating that all information was either factually inaccurate or had previously been disclosed. Since this rebuttal, shares in the company have recovered.
That said, even after the recovery, shares in the company still look cheap to me. Paysafe is expected to report a pre-tax profit of 168m this year, up from 11.8m last year. The City is expecting the company to report earnings per share of just under 32p, which translates into a forward P/E of 11.7. Next year earnings per share growth of 14% is pencilled in. This kind of growth may be too hard for some investors to pass up.
Make money, not mistakes
Arecent study conducted by financial research firm DALBAR found that the average investor realised an annual return of only 3.7% ayearover the past three decades, underperforming the wider market by around 5.3% annually thanks to poor investment decisions.
To help you streamline your investment process,realise and understand the most common investor mis-steps, the Motley Fool has put together this new free report entitledThe Worst Mistakes Investors Make.