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

The Daily Telegraph - Your Money - - FRONT PAGE -

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.”

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