The Old Mutual Global Investors fund manager has said there is a “fascinating dichotomy” between the global fund management industry and corporates on their outlook for UK companies.
“The corporates see real value in UK companies and global fund management investors see no value in it at all. Now I’m siding with the corporates and not global and UK retail investors.”
Buxton, who manages the UK Alpha fund, also predicts UK GDP growth will be 2% in 2018.
His views echo the house view of Woodford Investment Management, which this month declared the UK economy would be the fastest growing in the OECD by the end of the year.
Woodford IM also said global corporates were becoming more attuned to valuation opportunities, pointing to bids for Fenner, Fidessa, Hammerson and Laird.
Buxton said a week doesn’t go by without an overseas company wanting to buy a UK company.
And yet fund managers’ allocation to UK equities is 2.2 standard deviations away from their normal allocation, he said, citing the latest Bank of America Merrill Lynch fund manager survey.
A stockbroker had told him one of their biggest global clients had sold their last UK equity in January and UK retail investors were also looking globally for equity allocation, he said.
However, Buxton’s positive outlook for the economy was not limited to the UK. He expected fiscal stimulus in the US to be supportive of global growth and said Europe was undergoing a firm recovery.
In the UK, the Brexit transition agreement “sort of” removes the risk of a cliff-edge event, he said. However, he repeated the view of the European Union’s chief negotiator Michel Barnier that “nothing is agreed until everything is agreed”.
Buxton said inflation had eroded real wages in 2017, which he said caused the UK economy to decelerate. “The reverse applies this year, in that as inflation gradually fades away you get an expansion of incomes and probably a little bit of wage growth.”
Contrarian portfolio
Buxton said he was “filling his boots” with unloved UK companies, but admitted it could take years for the stocks to become loved by the market again.
The UK Alpha fund is third quartile over three and five years, returning 14.2% and 48.7% respectively compared to 19% and 51% in the UK All Companies sector.
Architas investment director Adrian Lowcock said Buxton’s underperformance was due to his contrarian style. Lowcock said the portfolio’s allocation to financials, miners and oil plays had underperformed the defensive growth story in the market.
On Buxton’s UK outlook, Lowcock said he tends to be early to trends. “That discount could stay there for a few years. He’s not forecasting when it’s going to change, he just thinks it’s an attractive valuation.”
