Buxton, who joined Old Mutual from Schroders in June 2013 but has managed the £2bn fund since December 2009, is one of the best known UK managers due to his value approach and – as a recent FE Trustnet article highlighted – his portfolio is now the most popular UK growth fund with multimanagers.
According to FE Analytics, his fund has been a top quartile performer in the highly competitive IA UK All Companies sector since he has been in charge with returns of 93.6 per cent, beating the FTSE All Share by close to 30 percentage points in the process.
Performance of fund versus sector and index since Dec 2009
Source: FE Analytics
While there are 58 funds in the sector which have delivered a higher return over that time, Buxton’s performance has been praised by fund experts as he has outperformed with a portfolio of mainly FTSE 100 stocks, rather than dipping into small and mid-caps to beat the market in the recent rally.
In this article, and even though the FTSE 100 has broken through its historic high, Buxton (pictured) highlights three-bombed out stocks which he thinks still offer very good value.
Tesco
First on his list is supermarket Tesco, which has been hugely out of favour recently as increased competition from budget retailers, concerns about over-capacity and dodgy accounting have all weighed on investors’ minds.
According to FE Analytics, the stock is down more than 30 per cent over two years while the FTSE 100 has returned 17.11 per cent.
Performance of stock versus index over 2yrs
Source: FE Analytics
Buxton says that food retailers had been on his radar for most of last year but he hadn’t felt confident buying into them without meeting the management teams. However, since he met Tesco’s new CEO in January, Buxton has initiated a 2 per cent position in the stock.
“We had the opportunity to meet the new chief exec early in January and while I do think it is going to be a very, very tough industry and it is going to be a long road ahead as there are lots of issues to deal with, the balance sheet isn’t great and they have pension deficit, I do think they are the right team to turn around the business,” Buxton said.
“I do think there are some basic retail errors that crept in but can be corrected. I do think there are a team worth backing and that there relative position within the industry will improve over the next couple of years.”
Rolls Royce
Next up is another FTSE 100-listed company – namely Rolls Royce.
Buxton has had a positon in the company for some time now but following recent share price weakness he has been adding to the engineering giant.
It has been a difficult year for investors in Rolls Royce due to two profit warnings in 2014 and a drop in sales for the first time in more than 10 years in February. As result, it is down nearly 10 per cent over six months.
Performance of stock versus index over six months
Source: FE Analytics
However Buxton says the numbers out of its recent market update have started to rebuild the company’s credibility and he is happy the CEO acknowledged the errors that the company made last year.
“We had the chance to meet the new finance director this week and it is a question of confidence on where we are heading two/three years out in terms of the issues of dual running of costs as they ramp up engine production,” Buxton said.
“I’m very confident about the cashflows that will be being generated in 2017-18 but, as ever with Rolls, you can’t be entirely confident that over the short term there won’t be a few thrills and spills along the way.”
“However, I think he is a good finance director and we are prepared to take a long view with Rolls Royce.”
Drax
The third stock on the list is Drax, the FTSE 250-listed electrical power generation company, which has been hit by a wave of issues from the fall in the gas price, restrictive European regulation, political wrangling in the UK about energy prices and a dividend cut.
All told, it means that shares in Drax have fallen nearly 50 per cent in value over the last year, while the index is up 6.82 per cent.
Performance of stock versus index over 1yr
Source: FE Analytics
Though Buxton isn’t expecting a massive turnaround in the short term, he says now is a good time to be picking up shares in the company – which supplies close to 10 per cent of the UK’s total electricity.
“We actually added to Drax during some of the panic induced moments around about the 360p per share level.”
“I’ve just come out of a meeting with them and at this price we think that all of that bad news in terms of spreads and the regulatory uncertainty coming out of Europe about biomass is all in the price and there is only upside from these levels.”
“We would caution that the clarity in terms of the regulation could still be a six to 12-month time horizon out of Europe. We have also got to see whether there will be a change in government, but I’m absolutely convinced about the strategic importance of this company.”
He added: “It will remain an extremely important asset in electricity supply and all parties are enthusiastic about biomass and will continue to support the changes that are going on there. It’s going to be a long haul, but as you know, we are patient investors and I am still fully committed to Drax.”