The manager of the £2.7bn Schroder UK Alpha Plus portfolio has steadily increased his exposure to more economically sensitive companies since 2010 in the belief that the UK market is at least close to its bottom.
"In 2000 the UK market was on a price-to-earnings (PE) ratio of 22; now we’re at nine or 10," he explained.
"On any 10-year time horizon, if you buy equities and close your eyes, you’ll make money."
Buxton is currently overweight the UK consumer sector, with significant positions in the likes of Debenhams and Taylor Wimpey, and underweight defensives.
"There’s no point in saying ‘I’m not ready yet’ just because there are risks, because you won’t buy in anyway near the bottom. Indeed, you’ve already missed the bottom of Debenhams, so why wait any longer?" he asked.
"I bought these companies in 2010 not because I thought the UK consumer and housing market were about to bounce back – indeed I think they’ll be flat. I bought them because they were so bloody cheap and because I’m a bottom-up stock-picker."
"These companies were priced for a complete collapse in GDP and I thought this was off the mark."
"We’ve seen a re-rating in sleep-easy companies like Burberry and Aggreko, but these are now on PE ratios of 16 to 18; I know where I’d rather be."
Buxton says he can’t say with any conviction what will happen in the eurozone, but claims that even a worst-case scenario wouldn’t change his view.
"If Greece were to exit, of course there will be a plunge in prices, but I think they’d bounce back pretty quickly with where they are now," he commented.
There are, of course, many UK equity managers who always insist the market is cheap, or at least fairly priced; however, Buxton hasn’t always been this optimistic in the long-term.
"In the 130 years of stock market history, we’ve had escalator periods of momentous growth followed by 10 to 15 years of going nowhere," he explained.
"Most recently we had the boom years of the late 80s and 90s when managers opted for portfolios with little tracking error because everything was going up."
"In 2002 when the fund was launched, I felt we were set for a period of going sideways, which has been largely true. As a result, I opted for a high-Alpha approach."
"We may have a few more years of this, but I think we’re far closer to the end than the beginning."
Performance of fund vs indices since June 2002
Source: FE Analytics
According to FE data, Buxton’s fund has returned 155.31 per cent since its launch, compared with 87 per cent from its FTSE All Share benchmark.
The manager doesn’t believe a fund with little tracking error is appropriate yet, but hasn't ruled out changing his style in the future.
"There are still a lot of issues out there and I believe there’s a lot of value to be added," he said.
"The banks have come a long way in their deleveraging phase; they’ve been doing it for around three years and I’d say we’ve got another three years to go."
Buxton invests on a three- to five-year view and his conviction in this approach is evident from the fund's turnover.
In 2009 he sold six stocks and bought five, while in both 2010 and 2011 he bought only two, selling five and three respectively. He has owned Standard Chartered since launch; it currently has a 2.9 per cent weighting in the portfolio.
"I have to keep an eye on that time horizon and accept that stocks will go up and down," he said.
The portfolio is highly concentrated, with between 30 and 35 stocks at any one time and it is rare that a company accounts for less than 1 per cent of assets under management (AUM), or more than 5 per cent.