Speaking at OMGI’s 2018 outlook event, the star equity manager said the country faces a “massive demographic divide” which could widen and play out on the UK political stage next year.
He accused the current UK government of “sleepwalking towards disaster” ever since prime minister Theresa May’s failed snap election in June.
“Capitalism is not working for the under 40s,” he said. “If it is not working then they are going to vote for something else.”
He added: “Markets are not pricing-in how high the probability of a Corbyn-led socialist government is over the next few years, months, weeks.”
International earners
To prepare for this in his £2.3bn Old Mutual UK Alpha Fund, Buxton is looking to add to positions in “very cheap” UK domestic stocks, such as Lloyds and Next.
However, as a “long-term bear of sterling”, Buxton said he is also “very happy” holding a lot of international stocks that are overseas earners because “sterling is on a downward trend”.
Buxton’s UK Alpha Fund has underperformed the IA UK All Companies sector over one, three and five years, returning 13.3%, 17.1% and 59.5% respectively, versus the sector’s 14.8%, 26.3% and 63.4%, according to FE data.
The UK All Companies sector has had a torrid couple of years. According to Investment Association statistics, in October the sector saw outflows of £223.9m, it was the worst selling sector in May, June July and September this year, and for every quarter in 2016.
Absolutely no bubble
But despite escalating asset valuations, Buxton refuted industry fears of an equity bubble on a global scale.
He said he can understand the concern, but there is no euphoria in equities and nothing representative of a bubble.
“I can understand why we can point to sectors and say ‘that is characteristic of bubble territory’, but do I think that means equities are overvalued? Absolutely not.”
However, Buxton is concerned over “very dangerous” exchange traded funds (ETFs) that “provide an illusion of liquidity”. He is worried there could be hazardous consequences if “everyone presses the sell button”.
“ETFs will be a source of trouble in the future,” he said. “The good news is they do not have leverage.”
Pointing to another area of the market where bonds are offering negative yields and in some cases four times oversubscribed, he added: “Historians will look back and think this is insane. It is nonsense.”
OMGI deal before Christmas
Buxton is currently leading negotiations with OMGI’s parent group Old Mutual Wealth and prospective bidders over spinning out Old Mutual’s asset management arm.
The £550m bidding war for OMGI includes Australian firms Challenger and Macquarie, as well as private equity firm TA Associates, former backer of Jupiter Fund Management, and Hellman & Friedman and CVC Capital Partners.
It is understood a deal is to be announced before Christmas.
