Entering 2015, we are now almost seven years into the post-financial crisis recovery, though there is still some way to go.
Many investors consider a 'normal' economic cycle to last around seven years, according to Richard Buxton, manager of the Old Mutual UK Alpha Fund. This has led some to believe that we are now in the late stages of the current cycle.
Richard Buxton takes a somewhat different view. He expects it could be fifteen, or even twenty, years before the healing process restores us back to the more familiar length of an economic cycle. In his view, we remain in the mid-cycle phase. Traditionally, in this environment, companies begin to increase spending and reinvestment into their businesses to encourage growth.
The manager has therefore maintained a 'pro-cyclical' stance and the fund remains biased towards more economically-sensitive areas of the market. Most notably, the fund's bias towards the financials sector has been maintained, which currently accounts for one third of the portfolio.
As a natural contrarian, Richard Buxton tends to favour unloved areas of the market and the manager describes the financials sector as an area that investors continue to shy away from, despite its significance in the UK market. While he has invested in a few banks including HSBC and Lloyds Banking Group, this portion of the portfolio is biased towards insurance companies such as Legal & General and Friends Life (who are currently benefitting from a bid by Aviva). The government are now doing more to encourage people to save towards retirement, and these companies could benefit.
Exposure to consumer-related names including Taylor Wimpey and Home Retail has also been retained and the fund benefited from these positions last year. Elsewhere, the expected benefit from falling oil prices had a positive impact on stocks including airline IAG (International Consolidated Airlines Group). On the other hand, oil-related holdings such as Genel Energy have been weak, as was power generator Drax, though the manager maintains conviction in these positions as long-term holdings.
Our view on this fund
Richard Buxton moved from Schroders to Old Mutual in June 2013 and we have since met him on several occasions. He seems to have settled in well and he has integrated with Old Mutual's experienced UK team, who we also hold in high regard.
Richard Buxton has managed portfolios of UK shares for almost twenty years and his long-term track record is superb. Our analysis suggests good stock selection has played a key role in his funds' performance, though the manager's contrarian approach and the concentrated nature of the fund means it tends to be more volatile than its peers and the wider stock market.
In our view, Richard Buxton's proven stock picking record, and the fact he is surrounded by a number of talented investors at Old Mutual, should help see the fund in good stead over the long term. This fund features on the Wealth 150+ list of our favourite funds at the lowest annual charge.
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