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Richard Buxton: Why this bull market still has plenty to run

25 July 2014

Old Mutual’s Richard Buxton is sticking with a growth strategy in expectation of a weaker pound in the coming months.

By Daniel Lanyon,

Reporter, FE Trustnet

The recent strength of the pound is all that is stopping UK equity markets reaching new highs, according to Old Mutual’s Richard Buxton, who expects the currency to weaken later in 2014.

ALT_TAG The manager of the £1.4bn Old Mutual UK Alpha fund says he is undeterred by 2014’s so far sideways market and says a weaker pound later this year should send the FTSE 100 up to a historical high above its psychological barrier of 7,000 points.

“Over the next couple of years I am extremely positive that the post financial crisis healing and recovery phase will continue. So, it is appropriate to have a positive pro-cyclical and pro-financial portfolio, not a defensive capital preservation portfolio,” said Buxton (pictured).

“I’m perfectly prepared to ride through this sideways phase because I think we will make a lot more money in the next several years.”

“The FTSE 100 could still break through 7,000 this year but the current strength of sterling has made that a lot harder.”

Buxton says investors, fund managers and the market in general are currently overemphasising the danger of a likely interest rate after five years of historical lows later this year and its ability to knock back markets.

“We are not at the end of the cycle,” he said.

“It is a mistake that many investors seem to make; the panicked reaction to the first rise in interest rates, moving out of cyclicals and into defensives. All it means is we are out of the emergency ward.”

Sterling hit a five year high against the dollar and the euro in June which it has stayed close to since. Over the past year alone the dollar has weakened 9.83 per cent while the euro is down 8.17 per cent relative to the pound.

Performance of currencies over 1yr

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Source: FE Analytics

This has contributed to lower than expected profits for certain companies; particularly for the larger caps names Buxton favours such as GlaxoSmithKline and Unilever.

“In the short term the issue for the UK market is the relative strength of sterling. There will be a lot of currency related downgrades to profit expectations, which will be a bit of a headwind,” Buxton said.

“But I’m prepared to stick with companies such as Unilever who are seeing the currency headwinds because in the long run sterling won’t be as strong.”


“For the FTSE 100 to break through its historical level we need to see broader profit growth coming from wider areas of the market and with sterling where it is we are going to struggle to see that.”

“So, effectively we are stuck in a trading range for the rest of the year until we can get that fast degree of profit growth that will only come from faster economic growth globally and specifically a weakening sterling.”

Buxton says the combination of the end of QE in the USA in October, the Scottish independence vote in September and build up to the 2015 general election could weaken sterling sufficiently to boost the market.

“As we come up to the Scottish Independence vote I don’t expect sterling to be as strong as it has been. Next May’s general election where the result is pretty uncertain should have the same effect.”

Since Buxton took over the Old Mutual UK Alpha fund in June 2013 it has returned 11.66 per cent compared to an IMA UK All Companies sector average return of 9.92 per cent and an 8.27 per cent gain in the FTSE All Share.

Performance of fund, sector and benchmark since June 2013

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Source: FE Analytics

In 2014 growth has been sluggish and the fund is only up 0.08 per cent compared to a sector average of 0.16 per cent and a gain in the FTSE All Share of 2.34 per cent.

Buxton had previously managed the Schroder UK Alpha Plus fund but left the group last year to take up the post of head of UK equities at Old Mutual and taking on the little-known UK Alpha fund.

An investor who had bought in when the manager joined in June 2002 and sold out on his departure from Schroders would have bagged a total return of 246.66 per cent compared to a sector average return of 116.37 per cent.

Performance of fund, sector and benchmark June 2002 to June 2013

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Source: FE Analytics


Buxton says his holdings have been bit by a by massive rotation this year, making value harder to find.

“Although the index has gone nowhere there has been a huge rotation away from cylicals and mid and small caps into larger stocks,” he said.

“That has meant a much narrower range of stocks that have performed within the FTSE 100. Which is why most active managers, myself included, are struggling.”

“In part this reflects a degree of reversal of two years where active managers performed extremely strongly and mega caps were seen as extremely dull and boring, but as a result valuations are very stretched. It has been exacerbated by people worried about the turn of the turn of the interest rate cycle here in the UK.”

The manager is currently favouring financials more than any other sector, having built up his holdings from 22 per cent to 34 per cent over the past two months. The fund currently has an total expense ratio of 0.78 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.