It has been two years since the United Kingdom voted to leave the European Union, which is as good a milestone as any at which to take stock and canvas views from renowned City figures.
Richard Buxton certainly fits the bill in this regard. Buxton is one of just a handful of genuine ‘star’ fund managers in the UK, having built his reputation through a run of market trouncing returns during much of his career.
On top of that, he is also the chief executive of fund firm Old Mutual Global Investors – soon to be separated from parent company Old Mutual and rebranded – so sees the world through both the lens of stock picker and company boss.
Richard Buxton is one of just a handful star fund managers in the City.
Buxton is bullish on the UK economy, despite what he sees as a less than satisfactory handling of the Brexit talks so far.
‘I don’t think the Government has made anything like the progress it should have in establishing what our relationship with the EU will be going forward,’ he says.
‘I think companies feel we have no clarity on the future yet, but we have to just carry on until we do.
‘What I take comfort from is the agreement for a traditional arrangement through to 2021 to avoid the so-called cliff edge.’
In fairness to the Government, Buxton points out the difficulty in carrying out a negotiation with an opposing side that has a very different agenda to your own.
‘I find it difficult to see how you can negotiate a deal that satisfies all aspects of the Tory party and the DUP, and also meet Brussels’ requirement that we must fare less well outside the EU than in it, so as to discourage any other countries from leaving.’
The UK economy showed signs of creaking under the strain of Brexit uncertainty in the first quarter of this year with just 0.1 per cent growth, but with prolonged disruption caused by repeated snow storms at least partly to blame Buxton is far from worried.
I think the UK consumer is through the worst in terms of an income squeeze
‘Clearly the economy did decelerate in the first quarter not helped by the extreme weather and the data has been mixed in the second quarter,’ Buxton says. ‘Retail sales picked up but manufacturing was a bit softer.’
‘As inflation falls away the squeeze on real incomes which has slowed the economy will reverse and this combined with a pretty strong labour market should bring some real wage growth through,’ he continues.
‘So, I think the UK consumer is through the worst in terms of an income squeeze, and the confidence numbers are turning slightly for the better, so I’m not particularly worried by that weak first quarter.’
Should the numbers pick up, Buxton expects the Bank of England to make a move in August, which is high time in his view.
Buxton expects Mark Carney and his Bank of England colleagues to raise rates in August.
‘I think we could see the UK economy surprise on the upside over the next 12 months, which means an August rate rise is going to happen,’ he says.
‘There is a group within the Bank of England, not necessarily including the Governor, that does not want to leave it too late or let the rates differential with the US get too wide.
‘I’m pleased that’s the case as I think they should be raising rates already. The panic cut after the Brexit vote was completely unjustified.’
I think they should be raising rates already. The panic cut after the Brexit vote was completely unjustified
Public finances are also key to the health of the UK economy, and offer further reassurance according to Buxton.
‘The government budget deficit figures continue to come in better than forecast and come the November Budget it is possible the government may be able to spend a little more, which should be good for UK businesses, particularly the outsourcers,’ he explains.
While steering the company ship as chief executive, Buxton is still fully hands-on with his £2.15billion UK Alpha Fund, and argues it is a great time to be a picker of UK stocks.
‘There is bound to be more short term volatility but on a three-to-five-year view there will be good growth in UK stocks. As a UK equities manager, the weakness of sterling has clearly helped and I have not made any material changes to my portfolio as a consequence of the referendum two years ago.’
‘What is clear as a UK fund manager, is that investors around the globe have rarely been as underweight the UK equities market as they are today, with persistent outflows from the asset class since the referendum.’
‘So, there are a lot of people who gave up on investing in the UK. This is actually a nice place to be for UK equities investors like me because it means shares are undervalued,’ Buxton explains.
This is actually a nice place to be for UK equities investors like me because it means shares are undervalued
‘We are on only 14 time earnings and yielding over 4 per cent, and interestingly we have had some takeovers like Michelin buying Fenner.
‘We’ve also got activists on the shareholder registers of companies like Whitbread, Barclays and Rolls Royce.
‘Clearly they are seeing the value in UK stocks that the global fund management community has not yet.’
Retailers are among Buxton’s holdings and rather than running away from the troubled sector Buxton sees it as an opportunity for a stock picker show their worth.
‘Some domestic names have struggled particularly in retail but that is largely due to the structural change in the sector stemming from people switching to online shopping, not the referendum result.’
He cites Tesco and Next as two retailers he invests in that he believes are well set to ride out the Brexit storm.
Buxton is a significant shareholder in Tesco having bought in when CEO Dave Lewis took over.
Far from worrying that the supermarket giant could suffer under the twin pressures of a merged Sainsbury’s and Asda and the German discounters Aldi and Lidl, Buxton is optimistic about Tesco.
He bought into the supermarket when current CEO Dave Lewis came in four years ago, believing in his turnaround plan. He concedes it took time for him to be proved right but he is now happy with the progress made recently and sees plenty more legs in the turnaround.
He notes the takeover of wholesaler Booker was ‘a very clever deal’, and expects to see significant benefits to Tesco stemming from it over time.
Buxton also sees a stabilisation of the supermarket ‘price war’ emerging, as the market has adjusted to the arrival of German discounters Aldi and Lidl, and the impending merger of Sainsbury’s and Asda should further dampen price cutting pressure.
Clothing retailer Next is also tipped for good times ahead by Buxton.
‘I added to my long standing holding in Next two months ago,’ Buxton adds. ‘They were early to say it when things were tough for them, and now I think they are through the worst.’
Perhaps the whole UK economy is through its worst spell in 2018. Time will tell.