buxton in the foothills of bull market

Schroders’ Richard Buxton has dismissed speculation on “the death of equity" and argued that a new bull market could be on the horizon.

buxton in the foothills of bull market


Equity funds have suffered in recent years as the global economic crisis and weak investor investor sentiment channeled flows away from stocks and towards bonds. Bill Gross, the manager of the $281bn Pimco Total Return Fund, recently said the “the ‘cult’ of equity … is over”.

Schroder UK Alpha Plus Fund manager Buxton, on the other hand, argued in his outlook for 2013 that the coming decade appears to be positive for equity investors, if historical examples hold true.

“We know there are lots of negatives in the macroeconomic environment and lots of headwinds to growth, but these are widely known and are reflected in share prices,” the manager said.

“From today’s starting valuation, history shows you will make very good returns over the next ten years. It is the starting valuation not the economic outlook that will drive those gains.”

Buxton added that macroeconomic concerns such as the ongoing eurozone debt crisis are the main reason the UK stock market is trading on a price/earnings ratio of 11 times.

However, this valuation fails to take into account companies’ strong balance sheets, good cash flows and growing dividends. “Equities are good value in absolute and in relative terms,” he said.

In addition, Buxton argued the three main macro worries that have held back equities – the eurozone crisis, the US fiscal cliff and slowing growth in China – have shown signs of easing recently.

“Over the course of 2013 I believe fears will reduce on all three fronts,” he added.

The manager concluded that the UK stock market has “gone sideways” for more than a decade and noted that the bulk of its returns have been made from dividends. However, he expects this to change soon on valuation grounds.

“We have already passed the low point for UK equities – below 3500 on the FTSE 100 index twice in the last 12 years – and are in the foothills of a new bull market,” Buxton predicted.


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