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Hidden gems in Richard Buxton’s Old Mutual UK Alpha fund

30 January 2014

In the next article in the series, FE Trustnet looks under the bonnet of the Richard Buxton’s Old Mutual UK Alpha fund to find some of the lesser-known companies he holds.

By Jenna Voigt,

Features editor

Richard Buxton’s move from Schroders to Old Mutual was one of the biggest fund manager moves last year, overshadowed only by Neil Woodford’s shock announcement he was leaving Henley-based asset manager Invesco Perpetual.

Buxton is a tried and tested manager in the UK equity space and as a result, many investors followed the manager when he took over the Old Mutual UK Alpha fund, show by the fact that the portfolio has taken on roughly £560m in inflows in the last six months, nearly doubling its size. The fund now has £1bn in assets under management. 

ALT_TAG The manager has been firmly in the bull camp for the last several years. The manager recently told FE Trustnet we were entering a 10 to 15 year bull run in equities.

Buxton runs a concentrated portfolio of roughly 30 stocks, the largest of which include major UK blue-chip names like Royal Dutch Shell, Lloyds and GlaxoSmithKine.

But there are a number of holdings further down the market cap which Buxton is backing for long term growth. Here, we reveal five of them.


Genel Energy

The Jersey-based oil company makes up 3.57 per cent of Buxton’s portfolio, making it one of the largest holdings in the fund.

The firm, which has a field office in Turkey, has the majority of its exploration and production operations in Iraqi Kurdistan, the though firm does have plans to expands its activities into other Middle East and North African countries.

Analysts rate the stock as a strong buy, as it has continued to increase production and revenues, raking in returns of 2066 per cent over the last year. The FTSE 350 Oil & Gas Producers index, by comparison, lost 2.51 per cent.

Performance of stock vs index over 1 yr

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Source: FE Analytics

The stock was trading at 975p per share at the time of writing and has a P/E ratio of 15.8, lower than the previous two years.

Buxton is the only manager in the IMA universe who holds Genel in his top 10.



Drax Group

Buxton is also backing FTSE 250 electricity company Drax Group, which makes up 3.2 per cent of the fund. The Yorkshire-based company supplies roughly 7 per cent of UK electrical consumption and operates the largest coal-fired power station in Western Europe.

Drax has also been one of Buxton’s winners over the last year – though as you can see from the chart it has been a bumpy ride - picking up 38.98 per cent in the last 12 months while the FTSE 250 gained 22.88 per cent. The FTSE 350 Electricity index made a mere 3.52 per cent over the period.

Performance of fund vs sector and index over 1 yr

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Source: FE Analytics

Over three years, Drax made an impressive 138.86 per cent, nearly tripling the performance of the FTSE 250.

The company is yielding 2.3 per cent.

Drax Group was trading at 8.13.5p per share at the time of writing and is on a P/E ratio of 27.5 – more expensive than it has been in the last five years.

Eight funds in the IMA universe hold Drax Group in their top-10, including the Schroder UK Alpha Plus fund, which Buxton previously managed and the Swip UK Flexible Strategy portfolio.


St. James’s Place

The FTSE 250 financial services company sits in Buxton’s top-10 holdings. St. James’s Place is a UK-based wealth management firm which has benefited from regulatory change under the Retail Distribution Review (RDR). The firm grew its assets by 27 per cent in 2013 and its performance reflected the growth. 

The stock has consistently beaten the FTSE 250 and FTSE 350 Financial Services indices, and by quite a wide margin. Over the last 12 months it more than doubled the returns of the indices, bringing in 68.13 per cent.

Over the last decade the outperformance is even more impressive. The stock return 450.45 per cent, nearly doubling the returns of the FTSE 250 and more than tripling the returns of the Financial Services index.

The stock was trading on a P/E ratio of 21.5, more expensive than it’s been in the last two years. It has a dividend yield of 2.6 per cent and was trading at 772.5p per share at the time of writing.

A total of 21 funds in the IMA universe hold St James’s in their top bets, including FE Alpha Manager Paul Spencer’s Franklin UK Mid Cap fund and SVM UK Growth.


ICAP

Another FTSE 250 stock Buxton is holds is London-based voice and electronic dealer broker ICAP. The financial services firm has seen mixed performance over the last several years and has recently come under pressure as it lost its role in setting key rate benchmarks on the global derivatives market.

Over the last year, the stock has performed in line with the FTSE 350 Financial Services index and ahead of the FTSE 250, bringing in 26.53 per cent.

Performance of stock vs indices over 1 yr

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Source: FE Analytics

However, the stock had a difficult time over three years, losing 14.85 per cent when the 250 and 350 indices were up 47.82 per cent and 36.28 per cent, respectively. The stock took a hit in 2012 when its core profits fell by more than a quarter in the first half. The firm’s chief executive, Michael Spencer, warned he saw no immediate improvement in poor market conditions.

As a result, the stock is still trading on a comparatively low P/E ratio of 9.4. It was trading at 399.50p per share at the time of writing, with an attractive dividend yield of 5.3 per cent.

FE Alpha Manager Alex Wright is a fan of ICAP, holding it in the top 10 in his five crown rated Fidelity UK Smaller Companies fund. In total, four funds in the IMA universe hold the stock in their top bets. 



Ladbrokes

British-based gaming company Ladbrokes is another hidden gem in Buxton’s fund, making up 2.36 per cent of the portfolio.

The FTSE 250 bookmaker was relegated from the FTSE 100 in June 2006 when its market cap fell too low. The stock has been battered of late and its shed a painful 27.6 per cent over the last year while the FTSE 250 was up 22.88 per cent and the FTSE 350 Travel and Leisure index was up more than 30 per cent.

The company still pays out an attractive dividend yield of 6 per cent and it is on a P/E ratio of 11.2, surprisingly higher than it’s been for the last several years, considering the disappointing performance.

The stock avoided a profit warning earlier this month, but analysts still say this hasn’t lifted pressure off management, so the outlook is hazy for the gaming company.

Two funds hold Ladbrokes in their top-10 – the five FE Crown PFS Chelverton UK Equity Income fund and the CF Canlife Global Equity portfolio.

The four FE Crown rated fund has been fairly lacklustre over the longer term compared to its peers in the IMA UK All Companies sector and the FTSE All Share; however, it was top-quartile over three years.

Since Buxton took over the portfolio, the fund made 10.02 per cent. The sector gained 8.43 per cent over the period and the FTSE All share made just 3.01 per cent, according to FE Analytics.

Performance of fund vs sector and index

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Source: FE Analytics

Though his track record on the Old Mutual fund is fairly short, the majority of UK investors will recognise his name from his long tenure at fund house Schroders, where he headed up the Schroder UK Alpha Plus fund.

As a manager, Buxton has consistently outperformed his peer group composite over the last one, three, five and 10 years. Over the last decade, he made 149.72 per cent for investors while his peers gained 128.37 per cent.

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