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Richard Buxton: I’m sticking with Barclays and banks
It's not nice but someone has to do it. Richard Buxton explains why he's bought into banks for the Schroder UK Alpha Plus fund, which has just marked its 10th birthday.
Britain’s banks have taken a battering. Taxpayer bailouts, the Libor rate-fixing debacle and numerous mis-selling scandals have all tarnished the image of the sector, but some investors are still optimistic about the outlook.
Richard Buxton, head of equities at Schroders, is buying UK financials. ‘We’re still, through gritted teeth, holders of UK bank shares and we bought a lot through the worst of the crisis. In the long run banks will get through this, they earn the money and then take losses,’ he said.
Buxton runs the Schroder UK Alpha Plus fund, which has given a total return of 40% over the past three years, ahead of the benchmark FTSE All-Share index's total return of 36%.
‘I bought more Barclays (BARC.L) last week from the moment [chief executive] Bob [Diamond] resigned, as it’s a clear catalyst for change, so I was happy to add to the position there. Yes, there’s a risk of class actions being launched, but I think proving that what took place provided a material detriment to the people involved in the class actions is going to be very difficult and take a number of years,' Buxton said.
‘We know there are others, like Royal Bank of Scotland (RBS.L), and there is an announcement coming up soon. There will be a fine. I’m sure Stephen Hester will be called before the [Treasury] Select Committee, but it was before his time, and it didn’t happen on his watch.’
The Schroder UK Alpha Plus fund is a Citywire Selection recommendation and its top 10 holdings contribute to Citywire Top Stocks. Its core holdings are in FTSE 100 companies, with around a quarter of the investments in medium-sized companies.
As unexciting as they seem, Buxton prefers to focus on large companies. ‘Large companies are inevitably slower growing, they’re dull, they’re boring and all the other value for managers is down in the small caps. Whilst it’s true to an extent, and you can get small companies that can double in a way large companies can’t, if you look within the FTSE 100 any year you can find ways of making money in large companies.’
‘We bought the stocks in 2010 slowly, month in, month out over most of the year at ever-decreasing prices not because we thought the UK economy was suddenly going to bounce back fantastically, far from it, it was just because the shares were so cheap.
‘They had repaired their balance sheets, they were prepared to drive profits forward even in a very difficult economic environment. Although valuations are ludicrously low, they are driving profits forward even in the very subdued environment.’
However, Buxton has been concerned about corporate governance issues with some of his holdings, and he has sent a flurry of letters to Barclays and coal-miner Bumi (BUMI.L) about problems in the companies.
Although the fund has a very low turnover, there has been some movement in the fund over the past year. Buxton sold Thompson Reuters, an original holding in the fund, last year having enjoyed an eight-fold rise in the share price. Standard Chartered (STAN.L), the emerging markets focused bank, is now the only stock that has been a consistent part of the fund since launch.
‘Personally I wouldn’t change a thing about the design and the structure of the fund 10 years on. I’ve built this cage around myself and I’m very pleased with it, I think it works’, he concluded.
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- Barclays PLC (BARC.L)
- Royal Bank of Scotland Group PLC (RBS.L)
- Standard Chartered PLC (STAN.L)
- Debenhams PLC (DEB.L)
- Taylor Wimpey PLC (TW.L)
- Tate & Lyle PLC (TATE.L)
- Bumi PLC (BUMIP.L)
- GlaxoSmithKline PLC (GSK.L)
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by James Carthew on Dec 06, 2013 at 08:43