According to data from Morningstar, Buxton has outperformed his benchmark in 27 out of 40 quarters.
He is ranked first quartile across five and seven years and since launch, and second quartile over three years.
Buxton joined Schroders in 2001 from Baring Asset Management, where he had also been for over a decade, to manage specialist UK equity portfolios.
The UK Alpha Plus Fund was then launched on 5 July 2002, created the on the basis that after the strong bull market of the 1980s and 1990s, the UK stock market was likely to move broadly sideways for ten to 15 years.
"Unfortunately my prediction was largely correct," says Buxton, "The market has positive years and negative years, but overall there has been little capital growth for investors".
10-year 158% Return
Not so for those who have held the UK Alpha Plus fund for the past 10 years. Since launch it has returned 158%, the equivalent of approximately 10% per annum compared to 6.4% per annum from the FTSE All Share Index, according to Morningstar on a bid to bid basis from 5 July 2002 to 5 July 2012.
The fund was designed with a high conviction approach in mind and holds around 35 stocks. Buxton explains: "During periods of strong gains for share prices, a rising tide lifts all boats. But in a market with little direction you must focus on a smaller number of potential winners".
Looking at the £2.9bn fund’s current asset allocation, Buxton has a significant overweight in consumer services, with almost 10% more than the benchmark amounting to nearly a fifth of his fund.
Meanwhile, he is underweight financials, oil and gas and telecoms, with 15.3%, 8.6% and 2.9% in each of these sectors, compared to 20%, 17.1% and 6.6% in the benchmark respectively.
Underweights and overweights
At the stock level Buxton’s top five overweights are: Tate & Lyle, Misys, Taylor Wimpey, Virgin Media and Debenhams, and his top five underweights are HSBC Holdings, Vodafone Group, BP, Royal Dutch Shell and British American Tobacco.
Since it is an Alpha fund, it is not surprising Buxton steers clear of the traditionally defensive stocks and sectors, but he has further reasoning behind his dislike of banks: "It has been four years since the financial crisis, but history suggests it takes at least six years for banks to work out their losses after a crisis. Banks, governments and individuals have too much debt and need to be retrenched, so economic growth will be low.
"Some parts of the world will grow faster than the UK and the UK stock market is international, so many companies may benefit from this. But resolving the global debt overhang and the issues in Europe will be headwinds for some time yet."
Despite this, Buxton believes there is good news in the valuations of UK equities because from a starting point of ten years ago the average P/E ratio has halved, so the next ten years could see double-digit real returns.
Future prospects
Of course they could also halve again to sit at five times earnings, down from ten times earnings where they sit today, and 20 times earnings where they sat in 2002.
Compared to FE Analytics, the Schroder UK Alpha Plus latest factsheet paints a slightly less positive picture. Looking at discrete yearly performance, Q1 2011 to Q1 2012 and Q1 2009 to Q1 2010 were periods in which the fund underperformed slightly.
The firm said the fund is more volatile than a more diversified or index fund but added returns over many years have rewarded the longer-term investor.
Buxton concludes that he is "more excited about returns from UK equities over the coming decade than back at launch in 2002, even if they remain volatile for the next few years".
While we know past performance is no guide to the future, should Buxton repeat the decade he’s just had, he has every reason to be excited.
