A little over three years on from his move to Old Mutual, Richard Buxton’s Old Mutual UK Alpha fund has underperformed his previous fund Schroder UK Alpha Plus after the manager maintained his famously bullish stance and preference for FTSE 100 companies. 
Buxton (pictured) left Schroders in June 2013, to become head of equities at Old Mutual, and in 2015 was named chief executive of the firm. He had been running Old Mutual UK Alpha on a sub-advisory basis since 2009, but after the switch, took over the fund full-time.
Schroder UK Alpha Plus, which Buxton had managed since its launch in June 2002, is currently managed by Philip Matthews – who was hired from Jupiter as his replacement. For some months after Buxton’s departure, however, it was run Sue Noffke and Alex Breese.
FE Analytics shows that Schroder UK Alpha Plus has outperformed Old Mutual UK Alpha by around five percentage points since Buxton’s departure; however, it must be noted by both have lagged the FTSE All Share and the average IA UK All Companies fund.
Performance of funds vs sector and index since June 2013
Source: FE Analytics
Buxton is a value investor, looking for opportunities in out of love sectors that may be in line for a recovery.
During 2013 and 2013, when the market was performing well, his current fund outperformed his previous one, but since then he has struggled as markets slowed in 2015 and then tanked in the wake of the EU referendum.
Adrian Lowcock, investment director at Architas, said: “He’s been expecting a bull market for quite a while now – when we say a bull market we mean the FTSE 100 going to 10,000 points not just going up to 7,000 and going back down again.”
While markets have risen since the Brexit referendum, investor sentiment is understandably under pressure and, with an economic slowdown on seemingly on the horizon, few would be expecting a tearaway bull market any time soon.
Another factor, according to Lowcock, is that the value style has struggled over the past few years with growth and quality tending to outperform. Added to this is the fact that Buxton can underperform for a period, only to jump back to the top of the performance tables.
“He has had periods historically where he has lagged so it is in keeping with his style,” Lowcock said, but noted that when the market is performing well, Buxton has performed well.
This recent underperformance, he adds, comes at a time when the manager was appointed chief executive of Old Mutual Global Investors – which some investors may be uncomfortable with.
“The big concern is he’s taken on a lot more work since he joined Old Mutual – he’s the chief executive - and whilst he’s the chief executive he can’t really afford his fund underperforming because it just adds to the pressure,” Lowcock said.
However, Andrew Johnston, senior investment research analyst at Square Mile, doesn’t see that this has been a problem.
“We do not think that his management role has had any effect on performance. It is something we speak to him about regularly and are satisfied that he has enough time for, and remains very much committed to, his fund management responsibilities and that he has the support in place to help this,” he said.
With workload unlikely an issue, Lowcock and Johnston both point to the opinion that Buxton backed mining stocks too early as one reason behind the underperformance.
“Whilst the portfolio was not actually overweight commodity sectors for 2015 in its entirety, the fund's performance was materially affected by specific holdings in the energy and mining sectors and, in a related sector, by electricity generator Drax (which suffered on the government’s decision to end the climate change levy exemption),” Johnston said.
“To a lesser extent being underweight defensive names, notably consumer staples stocks, also dragged on relative returns.”
Meanwhile, Matthews, who took over Schroder UK Alpha in October 2013, has been upping his weighting to more defensive stocks.
While Buxton is overweight financials, with around 20 per cent allocated to the sector, Matthews is underweight, accounting for only 17.4 per cent.
Matthews says that he is now “cautiously positioned” following the Brexit vote, looking at investing in companies which have been depressed and offer some value, but that have a “self-help component to their investment case”.
However, while Matthews has performed better over the last three years, Buxton has performed ahead of the FTSE All Share over the longer term as the below graph shows, with the Old Mutual UK Alpha fund outperforming by 7 percentage points.
Performance relative to the FTSE All Share under Buxton
Source: FE Analytics
“Buxton is an investor who prefers to take a contrarian approach, looking for cheap shares which have been punished by, in his opinion, a market over-reaction,” Square Mile’s Johnston said.
“As such there are always going to be periods when he is at odds with the market, and his style can tend to be fairly cyclical in nature, as can be seen in the relative performance chart above.”
“Nevertheless, held over the long term we expect his strategy to be a rewarding one for investors, and that this could, in fact, be a good entry point.”
Lowcock agrees that, given his historical experience of providing returns in bull markets, the fund may be one to watch if the market turns upwards, and has highlighted it as one to that could benefit in the short term from a weaker sterling.
“He currently has exposure to healthcare and oil majors both of which will benefit from a weaker pound,” he said. “From an investor point of view I think somebody like Buxton with the experience you need to be patient with.”
