“I am persistently adding to UK consumer stocks, and it is interesting to note that they are starting to outperform”, said Buxton, who has previously spoken of his belief in the sector’s upside potential.
Buxton cited stocks such as Next, Debenhams, Home Retail Group and Taylor Wimpey that are on just “6 or 7 times earnings” in expectation of downgrades that he believe will not materialise.
“The UK will be a long way from a normal environment for years, but starting valuations are pricing that in”, he said, speaking at a Morningstar Investment Conference.
“A comfort point is that profits are rising, equities are going up but they haven’t been re-rated that much”.
The manager is also a believer in “self-help recovery stocks” such as Misys, Logica, Tate & Lyle and Reed Elsevier, and said he is backing the new management teams in place at such businesses.
Buxton is also cautiously optimistic over the macro situation, despite the risks that remain. “The first half of this year was always going to be the worst half”, he said, pointing to the impact of the VAT rise and austerity measures.
“This is as bad as it will get. By 2012 public sector employees will know if they are in or out of work," he said. “It is the fear of unemployment rather than the extent of unemployment that really drives consumer spending".
Nonetheless, he retains concerns over the possible impact of the withdrawal of monetary stimulus measures in the US, due to commence next month.
“If you saw capital expenditure falling and in particular the US labour market going into reverse then yes, absolutely, it will be a case of ‘here we go again’ and further quantitative easing. But I don’t think equity markets will enjoy getting to that point”.
