Buxton, who made a high-profile switch from Schroders to Old Mutual earlier this year, argues that the economic recovery, combined with the underownership of equities, should result in high returns for investors.
“We have moved through from euphoria to disgust and because of that, I think the bears will be wrong over the next 10 years,” Buxton said.
At the turn of the century, the manager predicted that there would be a 10-year bear market in equities as the market was over-owned and overvalued. His forecast more or less came true, with the FTSE All Share returning just 34 per cent between January 2000 and December 2010.
Performance of index Jan 2000 and Dec 2010
Source: FE Analytics
“If you broke down markets since 1870, there have been great bull and bear phases,” Buxton said.
“The last bull phase ended in 2000 and that is when taxi drivers were giving you stock tips, the market was trading on 23 times earnings and pensions had 85 per cent equity exposure.”
However, Buxton is far more optimistic this time around. The manager is confident that we are now in the “foothills” of an extended bull run as the market is relatively under owned and fairly priced.
“Bull and bear markets tend to last at least 10 to 15 years and so if I am vaguely right, the next decade or so is going to be much better for equities than it has been over the last decade,” Buxton said.
“We have gone 23 times earnings to 12 times, everyone used to own equities, now no-one does. The next time I hear taxi drivers giving stock tips will be the time when I know the bull market is coming to an end.”
“However, that will be 10 to 15 years away and that is the sort of time frame I plan on having here at Old Mutual,” he added.
At 12 times earnings Buxton argues that the UK market is fairly priced; however, with pension funds likely to skew away from bonds and into equities, and companies likely to put their reservations to one side and start investing, he thinks this gives the FTSE more than enough room to re-rate.
“I think 12 times earnings is absolutely fine, but we do need earnings growth to come through,” Buxton said.
“In fairness, over the last five years it hasn’t just been investors who have been nervous."
“CEOs just haven’t wanted to spend money. We have had China’s slowdown, the fiscal cliff and issues like the Cypriot bailout, so they have had every excuse not to spend. However, what is interesting now is that the US is getting better, which could kick-start things.”
“That’s what we have missed, because if companies begin to spend, then those part-time employees become full-time and then people have more disposable income. It then becomes a self-sustaining recovery.”
“However, if management teams don’t do it over the next nine months, then it isn’t going to happen at all as we will start to see the pre-election nerves. I would love it if management teams did start spending as lots of companies have enough cash to grow their dividend and invest,” he added.
Buxton says he is confident that the FTSE 100 will break through the psychological 7,000 barrier over the next 24 months. Although he thinks the Fed’s inevitable QE tapering will create fear in the market, and could result in a correction of "between 8 and 10 per cent", he says such falls will be short-lived and will provide a buying opportunity for investors.
More sceptical fund managers have criticised the idea that we could be in the foothills of a bull market, given that equities have more tha doubled in some cases over a five year period.
However, Buxton says that these figures must be put into context.
"In March 2009 the market was trading at a P/E of six times," he said. "The market had just had one of its steepest falls in history, so referring to five year number is a bit misleading."
"Now equities are at 12 times, but that doesn't take into account the earnings growth that is to come through."
FE data shows that the FTSE 100 has returned just shy of 90 per cent over a five year period; however, if you go back six years - which includes the worst of the Lehman crisis - the index has returned just 27.03 per cent.
Performance of index over 6yrs
Source: FE Analytics
Buxton is now head of UK equities at Old Mutual, having taken over the group's UK Alpha fund in June this year.
He is best-known for running the Schroder UK Alpha Plus fund, which he managed between June 2002 and May this year.
According to FE Analytics, over that time it was the sixth best performing portfolio in the highly competitive IMA UK All Companies sector, with returns of 242.66 per cent, and beat the FTSE All Share by more than 110 percentage points.
Performance of fund vs sector and index June 2002 to May 2013
Source: FE Analytics
His Old Mutual UK Alpha fund, which will be run in the same vein as his Schroders portfolio, has already begun to attract steady inflows, growing from £280m to £830m over the last six months.
The portfolio has performed well since Buxton took over; returns of 9.8 per cent over the past six months put it ahead of both the sector and the index.
Like his Schroder UK Alpha Plus fund, the Old Mutual UK Alpha fund is a concentrated portfolio. It currently holds around 30 stocks. Top 10 holdings include Lloyds, Rio Tinto, GlaxoSmithKline and Royal Dutch Shell.
The Old Mutual UK Alpha fund has a total expense ratio (TER) of 1.6 per cent and requires a minimum investment of £1,000.
