Richard Buxton (pictured) is one of the most popular UK growth fund managers among fund pickers, as an FE Trustnet article earlier in the year showed, with more fund of funds managers using his £2.3bn Old Mutual UK Alpha fund than any other core UK equity portfolio.
Buxton took up the fund first in December 2009, at first on a sub-advised basis while a manager at rival Schroders before joining Old Mutual Global Investors as head of UK equities in June 2013. He was recently promoted to chief executive at the firm.
Over this six year period the fund is second quartile with a return of 71.37 per cent beating the sector average of 65.3 per cent and the FTSE All Share index’s return of 50.89 per cent.
Performance of fund, sector and index under Buxton
Source: FE Analytics
After beating the FTSE All Share for three calendar years in a row from 2012-2014, this year has been somewhat of a disappointing one for Buxton’s fans with the fund bottom decile of the IA UK All Companies sector with a loss of 6.27 per cent thanks to his large-cap value approach.
This highlights the importance of diversification. Even ‘star’ managers can underperform and so holding a broader number of investing styles can, when done best, ‘dovetail’ a portfolio so as to lower overall portfolio volatility and increase long term returns.
In this article we hear from the experts which funds they use alongside Old Mutual UK Alpha to do just that.
First up Charles Stanley Direct’s Rob Morgan says he thinks FE Alpha Managers Anthony Cross and Julian Fosh’s £1.3bn portfolio makes a good fit.
The managers follow their disciplined ‘economic advantage model’, whereby they focus on companies with intangible assets such as intellectual property, distribution channels and repeat business. They also consider a company’s culture and its brand power.
“It is still a growth fund but different in style as it focuses on finding a very specific type of business; those with long lasting advantages such as intellectual property that allow them to defy competition and drive a sustained higher level of profitability,” Morgan said.
“The managers are less concerned about valuation, and would rather simply own the right type of businesses for the long term. There is likely to be relatively little overlap with Old Mutual UK Alpha and more exposure to smaller companies.”
The fund has returned 224.05 per cent since the managers took over the portfolio, beating all but four funds in the 191-strong IA UK All Companies sector and tripling the return of the index.
Performance of fund, sector and index under Fosh/Cross
Source: FE Analytics
It has beaten the index in six out of the last nine calendar years and looks set to do so again in 2015.
The fund has a clean ongoing charges figure [OCF] of 0.87 per cent.
Next Adrian Lowcock, head of investing at AXA Wealth, tips this £600m fund that has been managed by Matt Hudson for the past decade.
The manager has an investment process which is based on the business cycle, whereby holdings are rotated depending upon the stage of the economy.
“Hudson believes that different stocks perform depending where we are in the economic cycle. He thinks the UK is in the later stage of economic expansion and is therefore investing in defensive companies, which are less sensitive to changes in the economy, such as pharmaceuticals as well as financials which tend to perform at this stage in the economic cycle,” Lowcock said.
The fund is top quartile over 10 and five years but has lost some of its moment over three and one years but is still ahead of the index over both but behind the IA UK Equity Income sector average.
Performance of fund, sector and index under Hudson
Source: FE Analytics
The fund has a clean OCF of 0.91 per cent. It currently yields 4.48 per cent.
Last up Steven Richards, who heads the Thesis Optima range of fund of funds, tips this £1.5bn portfolio managed by John Wood.
Richards has invested with Buxton for over 10 years following him from Schroders to Old Mutual fund, but uses Wood’s fund as his largest positions in the Thesis Optima Growth and Thesis Optima Balanced funds at a punchy 7.5 per cent.
The fund we have used the fund for the last 8 years to sit alongside Buxton’s UK Alpha process has been JOHCM UK Opportunities.
“Wood has never held any banks or miners and this historically – and certainly at this moment in time – offsets Buxton’s misfortunes with Glencore and his large financials weightings, albeit these aren’t exclusively banks.”
“Wood has a quality growth style investing in low debt highly cash generative companies which he describes as ‘self-financers’.”
JOHCM UK Opportunities has returned 120.95 per cent over 10 years, a top quartile return in the IA UK All Companies sector – almost double the gain of the index.
Performance of fund, sector and index over 10yrs
Source: FE Analytics
Almost 70 per cent of the fund is invested in large-caps and mega-caps as Wood deems smaller companies to be too risky.
He manager likes companies with predictable and sustainable earnings that are reinvested into the business rather than handed out to shareholders, the fund’s top holdings include BAT, RELX, National Grid and Unilever.
“He’s not worried about whether cash flow / earnings are used for yield and so is not as constrained as some equity income managers who look at the same metrics for stock selection but then have to be concerned with the dividend too, thereby not investing in some good companies simply because their dividend isn’t high enough.”
“Wood is also holding (and has held for close to two years now) a 20 per cent cash balance which will be serving him well in these markets.”
JOHCM UK Opportunities has a clean OCF of 0.81 per cent but it also charges a performance fee of 15 per cent performance fee if the portfolio outperforms its benchmark on an annual basis.