Veteran UK stock picker Richard Buxton has been investing in British stocks for nearly 40 years. His fund, now called Jupiter UK Alpha after Jupiter Asset Management acquired Merian Global Investors in 2020, is a long-term investor in large British companies. Buxton sits down with interactive investor’s Sam Benstead to chat about where he is finding opportunities at the moment and why the UK economy is in a stronger position than you might think. He also reveals the companies he has held for more than 20 years and explains why they make such compelling investments.
Sam Benstead, deputy collectives editor, interactive investor: Hello and welcome to the latest Insider Interview. Our guest today is Richard Buxton, manager of the Jupiter UK Alpha fund. Richard, thank you very much for coming in and speaking with us.
Richard Buxton, manager of the Jupiter UK Alpha fund: Not at all.
Sam Benstead: So, can you please tell me a little bit about the fund? Where are you investing and what type of stocks do you like to buy?
Richard Buxton: The fund is designed to provide long-term capital growth through a concentrated portfolio of typically only around 30 to 35 shares. And I'm a very long-term investor in businesses, not a kind of short-term trader of shares. So there are stocks I've held for nearly 20 years in the fund and I don't expect them to perform every single year, but if I still like the business, the management, the returns on capital, then I'm very happy if a company may pause in share price terms for a year, but if I think on a two, three-year view, I'm still going to make money, I'm comfortable.
Sam Benstead: And what are those shares you've held for 20 years then, and what are generally the sectors that you like to own?
Richard Buxton: Well, even with a 30-stock portfolio, you do want some diversification. So, I do have a range and I'm not a style-driven investor either. So, I've got reassuringly expensive growth stocks and then I've got some much cheaper value stocks. So, you want a blend right now. Clearly, it's been a much better period for bank shares. I hold both Barclays (LSE:BARC) and Lloyds Banking Group (LSE:LLOY) because effectively, clearly for 10 years-plus with zero interest rates, if your product is money and the cost is zero, that's not a great background. Whereas clearly with interest rates having risen in the last 12, 18 months, we've seen from recent results that banks are back making reasonably nice profits, and because they've got all the capital that the regulators want them to have these days, they can give an awful lot of that back to shareholders through dividends and share buybacks there.
Sam Benstead: Are there any sectors you won't invest in?
Richard Buxton: I haven't invested in tobacco for donkey's years. I just think, again, while they're very cash-generative in the long run, I just don't feel comfortable with the outlook for the future of those businesses.
I'm comfortable investing in the oil and gas sector because companies like BP (LSE:BP.) and Shell (LSE:SHEL), we're going to need them for a good many years, and they are managing the transition. They are investing in renewables, and wind and solar, and I think, better to still work with the managements of these companies to improve and move quicker rather than just disinvest and feel that you're somehow helping, but actually the planet is not getting any better.
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Sam Benstead: You invest in both growth and value shares. Where is the balance at the moment?
Richard Buxton: Well, obviously we had a tremendous run in growth shares. When the only way was Nasdaq and tech, then the valuations of growth companies just expanded and expanded. And I was tiptoeing away from some of those names in favour of cheaper value-orientated shares. At the end of the day, the price you pay for an asset still does matter to the return you get from that asset, and for a time people seemed to forget that. So yes, the portfolio, while it does still have some growth companies such as Experian (LSE:EXPN), Sage (LSE:SGE), a UK tech company, there's more of a spread in the value stocks, and that's helped over the last 12, 18 months because we have seen the valuations of those growth shares compress and we've seen a bit of a rerating of some of those value names.
Sam Benstead: You're a top-quartile performer versus peers this year and last year. What has driven that strong performance?
Richard Buxton: Well, the market was pretty tough in the first nine months of 2022. Clearly, markets falling, both equities and bonds, and the fund didn't have a great time but, from the lows of October, when sentiment had got so poor, our own Bank of England was not helping by being so gloomy and downbeat, we saw a very strong rally and it has been led by a lot of those more cyclical names, consumer-facing companies. And as we've seen in the trading statements in the first couple of months of the year, actually Christmas wasn't cancelled, people did spend despite the cost-of-living crisis. Consumer balance sheets are still in pretty good shape from the kind of enforced savings from the pandemic. Clearly an enormous skew as ever between the haves and the have-nots is very distressing. But in the main, as a people, while they were cautious and sensitive as to prices paid, people did spend. So, companies such as Tesco (LSE:TSCO), Next (LSE:NXT), and Whitbread (LSE:WTB), which runs Premier Inn, these have all reported very strong trading this year.
Sam Benstead: And are those all companies you've held for quite a long time that have suddenly fallen back into favour, or were they recent additions to the fund?
Richard Buxton: A stock like Whitbread I have held for nearly 20 years. Next, I've been a very long-standing supporter of, and it's proved good over time. So, these are the sort of names I've backed for a long time.
Sam Benstead: So, you are a long-term investor, but have you added any new stocks recently? What's caught your eye?
Richard Buxton: We've been doing a lot of work on one name, but we're just being a little cautious. We think that we want to see the next few trading statements just to make sure that the growth we think is there is going to come through. It might just be a little difficult over the course of the coming months. But no, the last thing we did back in October when the markets were really soggy, we just trimmed some of the positions in those commodity-related stocks that had done so well. Your Shell, your Glencore (LSE:GLEN), and just used it to add to some of the financial stocks that have been so weak. So, we added to Prudential (LSE:PRU), we added to wealth managers St James's Place (LSE:STJ). And they've rallied very strongly from the lows, so that was positive.
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Sam Benstead: You invest in companies, or UK companies of all sizes. How do you match the large and the mid-cap elements of the portfolio?
Richard Buxton: I don't go down into the small-cap world. We've got a very big, small-cap team at Jupiter. You need a lot of resource to meet all the companies. So, I always have around 75% of the fund, 75-80% in the FTSE 100 names, and then maybe 20-25% in effectively the top half of the mid-250. So, for liquidity reasons, I don't go down into companies that are less than about £1 billion. A lot of people would argue, rightly, that small companies can double and double again and, in ways that large companies, [which] clearly are more mature, [and are] not going to grow at anything like those rates. But if you look each year at the difference within the FTSE 100 between the worst shares and the best shares, there's still an enormous performance differential. So, if you can, over time, back more of the winners and avoid the losers, you can still deliver pretty good returns for investors, and yet you have no issue with liquidity or any danger of being stuck in shares. You've got instant liquidity. So that's the kind of style I've developed running this fund for over 20 years now in various homes. And I think it's proven over time.
Sam Benstead: There's been a lot of reluctance internationally and domestically to invest in UK shares. Why is that? Is that holding back the market, or is that presenting opportunities which will come good in the long term?
Richard Buxton: Well, you're obviously right. It's been not just international investors who have disinvested from the UK, but UK-based investors as well have sold them, and I think we've seen six consecutive years of outflows and as a result, the UK market is definitely one of the cheaper equity markets out there. As far as I'm concerned, this provides a valuation underpinning, and I think there are good opportunities. But partly it's because, in the years when Nasdaq was performing so strongly, the US market, the lure of putting more money into global funds, which well over half of which will be in the US, was very powerful and it did deliver stronger returns. Whether with this shift now in interest rates and a move towards a more value-orientated market, that might start to see a few people revisiting investing in the UK equity market, well, who knows, but we've certainly got a valuation underpin that is very supportive.
Sam Benstead: You said there are companies that you've held for more than 20 years in the fund. Can we have those names?
Richard Buxton: Well, I've held about a third of the fund for more than 10 years, but those that have been in nearly 20 years or so, I mean Whitbread, owner of Premier Inn. I think we must now be on the sixth chief executive during my ownership. Next has been a very consistent performer. They've managed that shift between bricks and clicks superbly over recent years. There have been others. Experian, I've been in ever since it de-merged from Great Universal Stores, for people of a certain age to remember. And Burberry (LSE:BRBY) as well has been one that's been pretty consistently in the portfolio.
Sam Benstead: Richard, thanks for coming into the studio.
Richard Buxton: My pleasure.
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