The Old Mutual manager (pictured) has been bullish since the summer of last year, telling FE Trustnet in July that the decade-long bear market had finally come to an end. In the same interview he said the UK index could hit 6,800 in 2012 – a figure it surpassed in spring – but he went a step further yesterday when speaking publicly for the first time since joining Old Mutual in June, insisting the psychological barrier of 7,000 could well be broken.
"With a bit more growth, I would say a range of 6,500 to 7,300 is realistic," he said.
"This is of course significant as that goes past the all-time peak, but I think we will break through that."
"Valuations are fine, but we need earnings growth, which I do think we’ll get. I was pretty gloomy in 2001 and launched the [Schroder UK Alpha Plus fund] in 2002, but from the beginning of last autumn this changed and I felt we were indeed in the foothills of a new bull market."
"It wasn’t a hard call – if history going back to 1917 is anything to go by, if you buy equities at this level, in 10 years’ time you’re going to make money."
The UK market is currently trading on 12x earnings compared with its long-term average of 14x, which Buxton says presents investors with a good entry point.
He says they should use any weakness in the market to add to their equity exposure.
"You should use any dip to buy equities, though of course I would tell you that, wouldn’t I?" he said.
That being said, Buxton has been one of the more bearish fund managers over the last decade or so, pointing out in the early 2000s that valuations were at dangerous levels.
He launched the Schroder UK Alpha Plus fund in 2002 as a direct result of his wariness, believing that a high-alpha style would be the only way to make decent money over the period.
For much of the 10 years following the launch, he was proved correct; the FTSE All Share had to contend with various crises and de-ratings and managed 69.38 per cent over the period, compared with the fund’s 154.47 per cent.
Performance of fund, sector and index June 2002 to June 2012
Source: FE Analytics
Given his bullishness, there is an argument that investors may now be better off buying an index tracker. Buxton himself admitted in last year’s interview with FE Trustnet that managers were justified in buying portfolios with little tracking error in the 1980s and 1990s "because everything was going up".
However, when asked whether tracker funds were a better option than active funds for the next decade, he replied: "Man has to be better than the machine. If you’re able to allocate more money in stocks that have done well and less in companies that have done badly, every fibre in me says it’s better to invest in [an active] fund."
"I have worked with a lot of people who have shown they can do this and the added value you get after fees is the argument for active managers," he added.
All is not rosy in Buxton’s eyes, however; he pinpoints overly optimistic earnings forecasts in the US, a possible return to tensions in the eurozone and the Syrian crisis as significant headwinds to markets; however, as mentioned earlier, he believes investors should look at any weakness as a buying opportunity.
He says another worry is elevated oil prices as a result of emerging countries subsidising their domestic government fuel prices.
"If the oil price stays north of $80, that is unsustainable," he said. "How this ends without it affecting the growth rates in some of these countries or political stability is something I worry about."
These worries aside, Buxton is especially optimistic about UK domestic stocks, with big overweights in banking and other financial institutions, for example. Lloyds, Resolution, L&G and St James’s Place are all top-10 holdings in his Old Mutual UK alpha portfolio.
His fund requires a minimum investment of £1,000 and is available across various platforms. It has ongoing charges of 1.6 per cent.
When asked whether he was worried about the possibility of the UK leaving the EU, he said this issue is unlikely to affect the equity market. Buxton says his personal view is that UK companies would be much better off leaving the EU and that arguments over severed trade ties are overstated.
"It hasn’t done Switzerland any harm," he said.
