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Axa Capital Growth Fund Reports and Financial

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Axa Capital Growth Fund Reports and Financial AXA CAPITAL GROWTH FUND REPORTS AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2020 AXA CAPITAL GROWTH FUND REPORTS AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2020 TABLE OF CONTENTS PAGES Manager’s report 1-7 Performance table (unaudited) 8 Report of the Trustee to the unitholders of AXA Capital Growth Fund 9 Statement of responsibilities of the Manager and the Trustee 10 Independent auditor’s report 11-13 Statement of net assets 14 Statement of comprehensive income 15 Statement of changes in net assets attributable to unitholders 16 Statement of cash flows 17 Notes to the financial statements 18-35 Investment portfolio (unaudited) 36 Movement in investment portfolio (unaudited) 37 General information 38 AXA CAPITAL GROWTH FUND MANAGER’S REPORT Economic and Market Review for 2020 2020 will likely go down in history given the severity of the shocks linked to the Covid-19 pandemic. The pandemic triggered a social and economic crisis on a scale rarely seen in peacetime. The massive support from governments and central banks avoided what would have otherwise been a bloodbath. It has been a trying year but there have also been some grounds for hope with the discovery of several efficient vaccines in just ten months, major political advances within the European Union (EU) and strong political commitments from China, the EU, and soon the United States to reduce CO2 emissions. Unsurprisingly, the pandemic significantly impacted the US economy with activity moving in parallel with the variation in mobility restrictions. For 2020, we anticipate a -3.4% contraction of GDP, but many uncertainties remain for the 4th quarter, prey to a significant spike in new coronavirus cases. At the worst of the crisis, unemployment reached 14.7% (+11.2 points) before falling back to 6.7%. However, the number of jobs destroyed or not recovered still stood at 10 million at the year end. The government quickly intervened with a first relief package of $2.3 trillion in April and a second one of about $900 billion in December after many weeks of negotiations in Congress. The plans contained almost exclusively measures of immediate support to households and businesses: cheques sent to households, reinforcement of unemployment benefits, conditional loans, state guarantees, without forgetting aid to the states to cope with the expansion of the pandemic: tests, vaccination campaign. US GDP managed to rebound at a record post-war pace in the third quarter, growing by 33.4% on an annualised basis, although the economy remained about 3% smaller than pre-pandemic levels. Meanwhile, the Federal Reserve (Fed) supported budgetary measures and countered the financial risks associated with the economic downturn. In addition to emergency measures aimed at ensuring liquidity during the liquidity crisis at the beginning of the pandemic, the Fed lowered its key rates to the floor 0-0.25%, relaunched and extended its asset purchase programmes and granted exceptional credit facilities. In the euro zone, economic activity was even more impacted by restrictive measures. A first strict lockdown in March-April, brought the economy to a complete standstill (down by around -70% of its normal activity). National governments and the ECB had no choice but to enact emergency measures to limit business bankruptcies, the fragmentation of the bond markets and ensure that favourable credit conditions were maintained. It is still too early to say whether these measures were sufficient, but they limited the most devasting social and economic consequences. As a result of these and the gradual easing of lockdown restrictions, activity rebounded strongly in Q3 before declining in Q4, impacted by a second wave of the virus and the reintroduction of restrictions, requiring budgetary and monetary support once again. Since the beginning of the crisis, the European Central Bank (ECB) has been relatively reactive and multiplied its initiatives. The most important announcement was the creation of a new asset purchase programme, the PEPP (Pandemic Emergency Purchase Programme), to the tune of €1.85 trillion, but it also continued to encourage banks to distribute credit while supporting subprime loans, weakened by the economic downturn. The ECB’s very interventionist policy was reinforced during the second wave and should continue for several quarters due to low inflation. In addition to national support plans, the EU has taken a step forward in defining a recovery plan partly financed by a joint debt issue. Despite several setbacks, the NGEU (“Next Generation EU”) recovery plan should be adopted at the beginning of 2021. - 1 - AXA CAPITAL GROWTH FUND MANAGER’S REPORT (CONTINUED) Economic and Market Review for 2020 (Continued) The British economy was probably the most impacted by the pandemic. A late but longer containment completely paralysed the country while it was already struggling with the uncertainties linked to its exit from the EU. As in other countries, massive budgetary coordinated with the central bank support helped to limit the disaster. Concerning Brexit, an agreement was reached at the end of December with an approval by the European Parliament to come. The UK should indeed continue to have access to the EU single market without quotas or customs duties for goods, while a new framework of competition rules will be put in place. In China, the drastic lockdown following the outbreak of the epidemic in January appears to have been a success, with almost no new cases at year-end. The recovery of economic activity was robust and only punctuated by a few external difficulties with the closure of Western economies. Budgetary and monetary support were mainly oriented towards business resilience, while households initially suffered from the loss of income. China economy is expected to expand approximately +2.3% in 2020. Japan was relatively spared by the pandemic even if its economy suffered the consequences with GDP expected to decline -5.5% in 2020. Industrial activity was impacted by the China’s shut-down at the beginning of the year, followed by that of the United States, while domestic demand remained sluggish. As with other countries, the government also unveiled a $2.2 trillion stimulus package to support household and business income while the Bank of Japan strengthened its monetary arsenal by opening the floodgates of credit and increasing its volumes of asset purchases. Global equity markets experienced an extremely volatile year after starting off on a positive footing, bolstered by the signing of the US-China “phase one” trade agreement. However, the onset of coronavirus in China, its subsequent global spread and the resulting lockdown measures led to fears of a worldwide economic recession. A global policy response ensued, with central banks aggressively easing monetary conditions, while governments worldwide launched record levels of fiscal stimulus. Despite a second wave of the pandemic, stock-market performance was strong towards the end of the year as three separate coronavirus vaccines were found to be effective. Joe Biden’s win in the US election removed a source of political uncertainty in November and helped pave the way for a new, $900 billion economic bailout in December. On Christmas Eve, the UK and European Union (EU) finally announced a trade agreement, which further supported sentiment. The generally positive end-of-year mood lifted the MSCI AC World Index to record high levels during December. US equities bounced back strongly from their coronavirus-prompted sell-offs. European markets had also begun the year well. However, bourses tumbled as coronavirus spread, with Spain and Italy suffering dramatic rises in cases. Tensions in the negotiations between the EU and the UK over a future trade deal affected sentiment, but European markets subsequently rose as investors cheered the Brexit trade deal, which ended years of uncertainty. Further support emerged in the same month as the ECB expanded and extended its asset purchases. UK Equities dropped to their lowest level in over eight years on the combination of pandemic and Brexit fears. Towards the end of the year, UK equities rose as investors welcomed the UK-EU trade agreement and the start of vaccinations. The generally upbeat mood of UK investors prevailed despite the announcement of new national lockdowns and the emergence of a more infectious coronavirus variant. The pandemic and its implications for global growth dragged down emerging market stocks initially, with a sharp fall in oil prices exacerbating the impact. Emerging markets rebounded to end the year strongly amid a loosening of lockdown curbs and dovish monetary policy. Meanwhile Chinese stocks advanced amid hopes of more stable relations with the US following the election of President Biden and after Beijing and the EU agreed a new investment deal. - 2 - AXA CAPITAL GROWTH FUND MANAGER’S REPORT (CONTINUED) Economic and Market Review for 2020 (Continued) Within fixed income markets, the FTSE WGBI Hedged USD Index returned +6.11% in US dollars. Global government bond yields (which move inversely to prices) were generally down over the period, reflecting investors’ concerns about the coronavirus and its effects as well as the very accommodative stance of most major central banks. Overall, the benchmark 10-year treasury yield fell from 1.92% at the end of 2019 to 0.92% by December’s close, touching a record low in March against a backdrop of investors’ worries about Covid-19. UK gilt yields, which move inversely to price, fell from 0.82% at the end of December 2019 to 0.20% over the period. Gilts benefited from safe-haven inflows while ongoing central bank support and the prospect of a sustained economic downturn anchored yields, which turned negative for the first time. In the Eurozone, the yield on Germany’s benchmark 10-year bund traded in negative territory amid concerns about the pandemic, ending December 2020 at -0.58%.
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