‘I bought a gaming firm, it was banned and fell 70pc’

Richard Buxton’s move to Old Mutual from fund management giant Schroders four years ago shocked investors. He has now become chief executive of the fund manager and helped grow its assets. The UK Alpha fund he runs has grown from £160m to £2.6bn over his tenure. He previously managed the fund on a “sub-advised” basis while at Schroders, meaning his performance on the fund goes back to 2009.

He tells us about juggling two jobs, that the UK isn’t heading for recession and why Lloyds will grow its dividend.

We take a view on companies, rather than investing based on our economic views, and we take an incredibly long-term view – we aim to hold a stock for three to five years, but I have held stocks for 11 to 13 years.

I don’t expect things to go up every year. If I still think it’s good and can deliver returns and the shares rest for a year I don’t mind. I typically invest in 35 shares, which are very large companies. I always have 75-80pc in the FTSE 100 and the rest in the top half of the FTSE 250. This means the fund is scalable.

The fund at the moment has £2.5bn in assets, but the old fund I ran at Schroders was £3.5bn and had no capacity constraints. The economy has slowed this year under a rise in inflation. It was bound to happen after a fall in sterling squeezed real income. I think inflation is peaking about now, and going into next year real income will expand a little bit.

I don’t think the slowdown we have seen this year will continue and drag into a recession. A world of 1pc to 1.5pc GDP growth is about as good as you get. But the corporate sector is not too

CV: Richard Buxton

He worked at Barings for 11 years before that. affected by Brexit in terms of confidence – we will grind along. We made no changes. By virtue of the large cap nature of the fund we had quite a lot of multinational exposure, and so benefited from a fall in sterling.

A combination of that and people’s fears about a slowdown in the UK meant many domestically orientated names, particularly retailer Next, did suffer but we absolutely stuck with them as we thought this is a temporary phenomenon and is not going into a recession. It is quite a reasonable slug, but I could easily increase it. It is partly in banks and partly in life companies like Prudential, which I continue to think is an amazing long-term business. But it is a pretty chunky position. Absolutely all of my money is invested in my fund.

OLD MUTUAL UK ALPHA

vs average UK fund since manager start

Investment veteran Richard Buxton tells Laura Suter about his stock market triumphs and disasters

and we’d made 10 times our money. It’s a multiyear period, but still a 10-bagger is always one you remember. I would have done a second degree and become an academic, teacher or writer. I actually did a year or two out of the industry, but the City had got in my blood and I realised that I was dammed. So I abandoned English and came back to fund management. Yes, as a business we are very happy to cut that, and have demonstrated that has been the case because as the funds have grown, costs have nudged downwards. But I think investors will absolutely pay a reasonable price for good performance. “About 25pc of the fund is in financial companies, which is in contrast to many people who feel like these businesses are pariahs post-global financial crisis. Banks have raised their capital to the regulatory requirements and are improving their return on equities, and are still cheap. For example, Barclays is trading at 60pc of its book value.

“With Lloyds we are also in it for the prospective yield. For an extended period they did not pay a dividend, but they are where the regulator wants them now, they have started dividend payments, and it will be interesting to see the company results in February and the degree to which they increase the dividend.

“We reckon this year Lloyds could pay a dividend of up to 4p a share and in the fullness of time could get up to 6p a share. That dividend is on a share price of 68p, which I think is materially the wrong price. “This is a bank that has got its house in order, it is managing its business very well, but is committed to growing its dividend again from token levels. There is talk of a 60pc to 70pc payout ratio of profits over time; in that case it is a phenomenally attractive investment for the current share price. “You have got the certainty that the chief executive is staying and wants to demonstrate further growth and growth in that dividend over the coming years. “These businesses should all benefit as bond yields start to drift upwards over the next year or two. There has been a strong headwind to financials, the fact that we have had this ever-declining bond yield. Surely over the next three to five years we will see a nudging up of rates.”