His new fund, Old Mutual UK Alpha, has already begun to attract significant inflows since he took over in May and has grown from £280m to £830m over the last six months.
Buxton is considered to be one of the best managers in the UK and for good reason.
He managed the Schroder UK Alpha Plus fund between June 2002 and May 2013. According to FE Analytics, it was the sixth best-performing portfolio in the IMA UK All Companies sector over that time, with returns of 242.66 per cent, and beat the FTSE All Share by 113.36 percentage points.
Performance of fund vs sector and index June 2002 to May 2013
Source: FE Analytics
It has only underperformed in three of the last 10 discrete calendar years – 2004, 2008 and 2011 – but in the other seven it was a top-quartile performer and comfortably beat its benchmark.
Neil Shillito, director at SG Wealth Management, is a big fan of Buxton and is confident Old Mutual UK Alpha could perform in a similar way to his Schroders fund.
“We weren’t invested in his Schroders fund. We have nothing but respect for him, but it was really down to a toss of a coin between him and Nigel Thomas for our core UK equity fund,” Shillito said.
“What you can say, however, is that he is a giant in the industry and is at a similar level to Neil Woodford, Nigel Thomas and even Anthony Bolton before he left for China. I have no doubt he will continue his success at Old Mutual,” he added.
Shillito (pictured) says that not only is Buxton a good stockpicker, but he has also been able to call the macro backdrop well during his career. For instance, Buxton predicted that equities would have a difficult decade between 2000 and 2010, and was proved correct.
However, the manager is far more bullish this time around and expects a 10- to 15 year rally. As a result, Shillito is considering investing his clients' money in Buxton’s Old Mutual fund.
“I would certainly recommend him as a manager and we will certainly take a closer look at his new fund in the near future with the view to invest ourselves. He is a manager who is difficult to go against,” he added.
According to Buxton, Old Mutual UK Alpha will be run in a very similar way to his Schroder UK Alpha Plus fund, which means he will be looking for opportunities to buy undervalued companies in the UK large cap space.
In-depth research by a team of analysts is central to the process, Buxton explains.
“Meeting the management and doing our homework on a stock is at the centre of what we do,” he said.
“We’re long-term investors, very patient with a low turnover. We genuinely buy companies on a three- to five-year horizon, and we mean it.”
“This is not something I could do in my garden shed. I had between 13 and 15 people with me at Schroders and here I have 15. It’s the kind of fund that is either first or fourth quartile, which comes from my long-term low-turnover style. Fortunately there’s been more firsts than fourths.”
“It tends to be a 35-stock portfolio. I choose companies where I see catalysts for a re-rating, which are often unloved,” he added.
Buxton says he is occasionally willing to pay up for supposedly expensive stocks if he thinks they can continue to grow faster than the market rate and won’t buy cheap stocks unless he sees a catalyst for a re-rating.
“I hold Experian which is on 21 times earnings – I’m happy for a company like this to not do a lot and rest on the bench for a while after having a great run,” he said.
“I’d suspect [value managers] may be buying Tesco at the moment, because it is very cheap on a historic basis,” he said.
“Suppose Tesco does sort itself out and stop spending money, it would do well, but I need to see a catalyst before I buy. They may not sort themselves out for five years. Value in itself isn’t enough for me,” he added.
As the manager told FE Trustnet, he has recently found a number of value opportunities and is very bullish on Lloyds, Rio Tinto, ICAP and Royal Dutch Shell.
Although investors could be forgiven for thinking that Old Mutual UK Alpha's launch coincided with Buxton’s arrival, it actually has a track record spanning back to February 2003.
Before Buxton, it had been used by the multi-manager team for asset allocation purposes, and the fund’s long-term performance has been poor.
Our data shows it is a bottom-quartile performer in the IMA UK All Companies sector over 10 years and has returned close to 30 percentage points less than the FTSE All Share. The major damage was done in the early years of its existence when it was a perennial struggler.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Buxton says it is frustrating that the fund has that sort of long-term track record, however he is keen to point out it is now a very different portfolio.
“Of course it does [frustrate me], but fortunately people know I wasn’t running it then,” Buxton said.
The manager has already begun to have an impact: the fund has returned 7.34 per cent since he took over while the sector has made 5.89 per cent and the FTSE All Share just 1.71 per cent.
Its capacity may be of concern to some investors given the fact that it has already taken in a lot of money and has grown by more than three-fold since Buxton took over. The manager says this is something he is always thinking about, but he doesn’t see it affecting his process for a long time to come.
“I keep a very close eye on this, as the fund was just £150m when the news first broke,” Buxton said.
“The good news is that because I invest 80 per cent of the fund in the FTSE 100 and the rest is in mid caps, liquidity isn’t really an issue. The smallest holding by market cap will only ever be £800m. This is a genuinely scalable product.”
The manager says his low turnover-rate is another reason why capacity won’t be an issue.
His Schroder UK Alpha Plus fund had grown to £3.8bn and he says the size had no impact on performance.
However, he says at Schroders he had to consider how much his fellow fund managers held in the stocks he owned, something that isn’t a problem at Old Mutual.
Buxton was also pleased to see that the old fund still outperformed even though £1.3bn came out of it after the news of his departure. Nevertheless, Buxton realises that his strategy does have a limit.
When asked at what point capacity would become an issue, he said: “Ask me again at £5bn.”
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.
