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Buxton tips FTSE to hit 7,300 next year
by Danielle Levy on Sep 05, 2013 at 07:51
The FTSE 100 could reach 7,300 in 2014 as the UK economic recovery gathers pace, according to Old Mutual Global Investors’ new UK equity head Richard Buxton (pictured).
The Citywire A-rated fund manager is also unfazed by the challenge a growing passive market could pose to active management - even at a time when fees are coming under scrutiny - arguing that man should prosper against the machine.
‘Man has to be better than the machine. If a portfolio puts more in stocks that have done well and less in companies that have done badly, every fibre in me says this is wrong. You have got to do better than that. I have worked with a lot of people who have demonstrated they can do this and the added value you get net of fees is the argument for active managers,’ he explained.
Bullish Buxton, who runs the Old Mutual UK Alpha fund, expects the FTSE to trade between 6,500 and 7,300 next year, supported by what he describes as the ‘sod it factor’, as better weather, economic data, employment and consumption figures make consumers and corporates feel more positive about spending money.
‘That is very significant as the 7,000 was the peak and I think we will break out above that,’ Buxton said.
With the UK market trading on 12 times earnings compared to its long term average of 14 times, Buxton says valuations still look ‘absolutely fine’ and he has no shortage of investment ideas. Although some of his stocks have come a long way in terms of share price performance, such as Experian, he says he can’t bring himself to sell them and expects to see continued growth.
Against this backdrop he is particularly positive on domestic UK stocks that are geared into the nascent and strengthening UK economic recovery. The fund manager remains bullish on banks, a call he has had in place since 2008, not least because the sector stands to benefit from a steepening yield curve. Although more stringent regulatory requirements cannot be underestimated, he says the investment case remains strong.
‘For the last five years I have been long banks and it has felt lonely, but they have outperformed for four out of the five years and undoubtedly things start to get better. There are still losses to take in but with every month that goes by you earn some more profits and write off some losses and progress has been made. The regulator is still by far the biggest threat because they keep pushing up the requirements for capital,’ he said.
At the same time, he believes there is still a recognition that banks need room to recover and generate returns for shareholders otherwise he says the government ‘may as well nationalise the lot’.
Domestic cyclicals can be supported by the pick-up in economic activity, which Buxton expects will continue into next year.
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Ian McVeigh and Steve Davies, managers of Jupiter's UK Growth fund, talk about their predictions for the UK equity space. Click here to watch a series of sponsored interviews with Jupiter's fund managers on the UK equity market.