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Richard Buxton: Why we’re not out of the woods with this sell-off

27 October 2014

Stock markets could remain volatile for some time to come as fear rightly returns to the market, warns star manager Richard Buxton.

By Gary Jackson,

News Editor, FE Trustnet

The sharp correction that hit global equity markets recently may not be over and done with, according to Old Mutual Global Investors’ Richard Buxton (pictured), who views the sell-off as a healthy reintroduction of fear into the market.

Between 4 September and 16 October the FTSE 100 declined alongside other global stock markets on the back of a multitude of fears, losing 9.83 per cent in the process.

Although the falls appear to have stabilised over the past week, they have left the blue-chip index down more than 5 per cent over 2014 to date and it is down at the time of the writing as investors react to Europe’s banking stress tests.

Performance of indices since 4 Sep

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Source: FE Analytics

Buxton, who manages the four FE Crown-rated, £1.5bn Old Mutual UK Alpha fund, said in an investor update: “I think it’s actually remarkably healthy that we’ve had some fear re-induced into share prices.ALT_TAG

“We’ve been so stuck in this trading range all the year that to break out of the bottom of that and get some concern into prices is actually very healthy.”

Since 16 October, equity markets have staged a modest recovery. The FTSE 100 has risen 3.22 per cent, compared with a 4.34 per cent rise in the MSCI World and a 5.07 per cent gain in the S&P 500.

Despite this apparent calm, Buxton warns investors that stocks may not immediately return to their steady upwards grind.

“Are we out of the woods yet? Not necessarily - it may carry on a few weeks longer but I genuinely feel this is an opportunity to invest,” he said.

“Valuations certainly in the UK are not remotely stretched and I think this is a good and very healthy correction.”

Buxton’s view is similar to that of FE Alpha Manager Neil Woodford, who recently suggested the sell-off reflected the market pricing-in expectations of slower global economic growth.

Woodford said: “What we are facing … is a reappraisal of the outlook for the global economy. In the context of what I believe is happening to the global economy this readjustment in asset prices is arguably quite rational.”

Like Buxton, the manager of the £3bn CF Woodford Equity Income fund, argued that the correction is unlikely to turn into a full-on rout from stocks, although he predicted that it would not last well into the coming months.

“My gut instinct is that we’re in the teeth of a pretty aggressive sell-off but it may well be substantially through the acute phase,” he said.


“I think there’s a bit more to go but I think we’ve endured a pretty severe sell-off already. I wouldn’t expect this correction to go on for weeks and months - I think it’s going to be over and done with relatively quickly.”

A number of issues are commonly cited as being behind the sell-off, including the threat of deflation and renewed recession in the eurozone, slowing growth on the global stage, the end of quantitative easing in the US, conflict in the Middle East and the spread of the Ebola virus.

Of these, Buxton singles out Europe as being the biggest concern. Inflation across the eurozone has slowed to just 0.3 per cent while the economy of the 18-state-strong currency bloc failed to expand over the second quarter of 2014.

The manager points out that the market has become “disillusioned” with the European Central Bank’s (ECB’s) reaction to the downturn and doubts that its policy response - which included taking interest rates to new record lows and starting an asset purchase programme - will prove effective in its current form.

Most commentators believe the response has already failed and believe the central bank is poised to embark on a full QE initiative in a bid to breathe life into the ailing economy.

However, Buxton predicts that ECB president Mario Draghi will persist with his current plan for some time.

Buxton added: “It’s not all doom and gloom in Europe. Spain in particular has been growing at an increasing pace in each of the last three quarters. Clearly things are still difficult in France and Italy but it’s not universally bad news.”

“Talking to companies that trade in Europe … the word is that there is still a pulse and the patient is not dead. I think we just have to keep a very watchful eye on what goes on in Europe and the potential impact it might have on the UK.”

Buxton has managed the Old Mutual UK Alpha fund since December 2009, first on a sub-advisory basis and then full-time after he joined Old Mutual Global Investors from Schroders as head of UK equities in June 2013.

The fund survived the recent market turmoil “pretty well”, according to the manager.

FE Analytics shows Old Mutual UK Alpha underperformed the FTSE 100 between 4 September and 16 October after falling 10.56 per cent. However, it better captured the upswing that followed with a 5.18 per cent gain against the index’s 3.22 per cent rise.

Over the year to date, it has fallen 4.33 per cent, which is outperformance against the FTSE and its IMA All Companies peer group.

Performance of fund vs sector and index over 2014


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Source: FE Analytics

The manager’s bullish stance and concentrated approach means he tends to lag in falling markets but outperform when stocks are rising.


The fund’s long-term track record is strong, thanks to Buxton’s patient application of a proven investment process that blends company analysis with top-down considerations.

It is top quartile since he took over the portfolio, with a gain of 73.05 per cent against a sector average of 56.49 per cent.

The manager has a bias towards large-caps, with his top five holdings currently comprising HSBC, Royal Dutch Shell, Lloyds, Glencore and Barclays. In terms of sectors, its largest allocation is to financials at 33.16 per cent followed by consumer discretionary stocks at 18.77 per cent and energy at 15.87 per cent.

Old Mutual UK Alpha has clean ongoing charges of 0.78 per cent.

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