Buxton has been betting on the UK consumer of late, saying last month that he was “persistently adding” to UK consumer stocks. Retailers such as Next, Debenhams and Home Retail Group are among those on his radar due to their low PE ratios.
The newsflow from the sector continues to be bleak, however, as Buxton himself notes. Habitat and Jane Norman are the two latest businesses to enter administration, while sales have begun early at major retailers such as Marks & Spencer and others such as HMV continue to fight for survival.
Buxton acknowledges that “without doubt more retailers will go under and more will reduce their size” but says that those firms with strong balance sheets, sustainable business models and “experienced and cautious management” will be well placed to prosper.
Eventually, such companies “will benefit from the reduction in capacity as others around you fail or shrink,” he says.
“It will be a long and difficult road, but current share valuations offer considerable protection against the shorter-term trading risks. For the patient investor, there will be great opportunities on the High Street in the coming years.”
The nature of public and private sector deleveraging means “we face a subdued consumer environment for several years to come”, he admits. But though there may be more pain to come for the UK consumer, Buxton believes the worst of it may be over. He suggests that the worst of the petrol price rises have now passed, and says “further substantial tax increases are unlikely”.
Buxton also points to the pushing out of rate rise expectations and the resilience of the private sector labour market and new business formation as more positive factors.
