Investors should not panic over imminent volatility as UK voters go to the polls, according to Richard Buxton, head of equities at Old Mutual Global Investors, though he does expect the FTSE to go through a turbulent period over the coming months.
Buxton who is also manager of the £2bn Old Mutual UK Alpha fund believes that while there has been no apparent market reaction yet, in the next few weeks ahead of the 7 May vote, we will see the stock market panic as volatility rises.
However, he says even in a “worst case scenario” there will be no long term fall out, with markets recovering rapidly.
“The next few months will see volatility rise but there is a lot of cash out there looking for a setback to invest with investors selling back UK exposure,” Buxton (pictured) said.
“We have not changed our portfolio in anticipation of any particular result, it is more or less un-call-able although we have run through the possible scenarios and outcomes for the overall market,” he said.
“I concluded it was not worth doing anything. Even when we looked at possible worst case scenarios of the impact of increased business unfriendliness, interference, more regulation history suggests that the stock market overreacts.”
“Therefore, I am willing to go into the election with the same portfolio and buy more of the stuff that gets hurt and add to our existing core holdings.”
A number of industry experts have taken a different view to Buxton, though, with many managers avoiding the UK equity market due to political uncertainty and high likelihood of a hung or weak government.
“You’ve got an election coming up which is extremely difficult to call, and that speaks to uncertainty. On top of that, it’s quite difficult to conjure up an election result that plays well with financial markets,” FE Alpha Manager Bill McQuaker said last month. 
The manager made the high profile move from Schroders to Old Mutual Global Investors in 2013 to become head of UK equities and to take charge of the Old Mutual UK Alpha fund, attracting around £1.3bn worth of assets as a result.
He had run the fund previously as a separate mandate for several years while at Schroders.
Buxton’s longer term bullishness is based on the belief that the UK’s recovery is firmly established, with untiring growth in employment evident in consistent quarterly numbers.
“Job vacancies recently hit an all-time high, up 20 per cent year on year, suggesting this improvement in the labour market is set to continue. As the recovery broadens, full-time jobs are increasing relative to part-time, hours worked are rising and there is evidence of some much anticipated wage growth at last.”
“Seven years on from the financial crisis, the healing process is on-going. But it is clear that growing corporate sector confidence is being reflected in investment and job creation. Consumption is not debt-fuelled as in the past, and should grow as incomes pick up.’
“Whilst the UK stock market does not have the stimulus of Europe’s QE nor the scale of the Euro’s decline behind it, UK companies are benefitting from the UK’s economic recovery. We have seen good levels of dividend growth from many companies and anticipate that UK banks will increasingly grow their levels of dividends to shareholders.”
In contrast, FE Alpha Manager Margaret Lawson who runs the SVM UK Growth fund takes a different view believing that valuations already reflect the risk to markets.
“Uncertainty over the UK Election appears to have been priced-in, as the FTSE 100 has lagged many other major markets. Those with cash on the side-lines may find they need to re-enter UK equities at higher levels. With deposit rates so low, and no immediate sign of a rise in UK interest rates, UK equities are one of the most attractive asset classes in terms of dividend yield, she said.
“The UK is seeing a pick-up in real wage growth, but consumer prices actually moved into deflation in February and March. UK monetary stimulation is likely to continue, and ECB quantitative easing may be extended. Equities should benefit from this.”
The UK has lagged behind other key equity markets in 2015 despite a pretty solid upward trend as shown in the graph below. Only the S&P 500 has gained less, reversing a trend seen for several years.
Performance of indices in 2015
Source: FE Analytics
Buxton has run Old Mutual UK Alpha for just over five years over which time it has returned 95.42 per cent to investors while the FTSE All Share has gained 68.88 per cent and the IA UK All Companies sector average is a return of 77.84 per cent, according to FE Analytics.
As the graph below shows, Old Mutual UK Alpha has consistently stayed ahead of the market over this period although this difference has accelerated in the past few years or so.
Performance of fund, sector and index since December 2009
Source: FE Analytics
It is top quartile over three years but is just pushed out of achieving the same since he took over the fund in 2009, as it now sits at the top of the second quartile.
Battered banks remain Buxton’s biggest bet, with more than 12 per cent of his fund split between HSBC, Barclays and Lloyds. More broadly he has another 20 per cent of his fund in other ‘financials’ such Legal & General, St James Place and Prudential.
However, he has also moved into a position in Tesco this year, his only new holding in 2015.
Old Mutual UK Alpha has a clean OCF of 0.78 per cent.