The UK Alpha Fund manager is eager to see money earned on excess deposits of major banks, such as HSBC.
“Both scenarios are notable tailwinds for our holdings in banks and financials, an area that accounts for over 20% of the fund,” he said.
“Investors might even wake up to the fact that, unlike their eurozone peers, UK banks are well capitalised, have significant liquidity buffers, and have passed vigorous stress tests”.
HSBC is one of Buxton’s largest holdings, while Lloyds – hit today by the government’s decision to abandon a retail share offer – is also in his top 10.
In the wake of sterling’s recent collapse, Buxton also believes the sterling/dollar exchange rate could fall to 1.15 – or lower – given the government’s hard line on Brexit.
Around 50% of his fund’s holdings are currently in dollar-related stocks, and he points to having already seen meaningful currency upgrades from many of the large-cap overseas earners, including Glencore, and two of his biggest holdings GlaxoSmithKline and AstraZeneca.
He also points to more fundamental reasons behind the upgrades of these stocks: “In the case of Glencore, the company has worked hard to re-introduce balance sheet discipline. A capital raising, disposals, and a suspension of dividends last year and this should result in a resumption of dividends next spring.
“GlaxoSmithKline is benefiting from strong growth from its HIV franchise, has seen the end of a multi-year run of profits downgrades, while AstraZeneca is making impressive strides with its immunotherapy treatment for lung cancer, giving grounds for optimism that dividends are sustainable going forward.”
Buxton also suggested that, in their search for quality yields and earnings streams, many investors have in fact “turned a blind eye” to valuations.
“It is too early to say whether or not some of the performance of defensive stocks will unwind relative to their financial and cyclical counterparts,” he said.
“However, it is encouraging to see how the slightest shift in bond yields – as we saw in the first week of September – can have an almost disproportionate effect on ‘bond proxies’.”
