Talking Point  

Buxton targets value stocks despite economic concerns

Buxton targets value stocks despite economic concerns

Richard Buxton, head of UK equities at Merian Global Investors, has been buying more shares in the companies that are more likely to suffer as a result of the pandemic.

Mr Buxton runs the £1.1bn Merian UK Alpha fund.

He uses the value style of investing which has been out of favour for most of the past decade, and Mr Buxton acknowledged that such an investment style is  to some extent predicated on economic growth picking up. 

Mr Buxton is not particularly optimistic on the short-term outlook for the UK economy, but is still focused on buying the shares of housebuilders and banks, two sectors on which he has long been keen.

He said: “It would be quite easy to invest in defensive companies like tobacco and consumer staples in an uncertain economic climate. 

"But that is not what I do. I still believe that valuation matters, that the price you pay matters. I recently added to my holdings in banks, and in some houseuilders. I think some of these companies will come out of this stronger." 

Mr Buxton believes that many of the companies in sectors of the economy most prone to struggle amid a tough economic climate, can be good investments because the weaker companies will go bust, leaving more market share for the better businesses.  

One bank in which he is less keen to invest is HSBC, as he is sceptical that the present restructure of the business will go far enough to make it an attractive investment. 

Ben Whitmore, head of strategy for value equities at Jupiter says: “History shows that value investing has delivered above average returns coupled with periods of underperformance.

"The last five years is one such period of poor performance. This period has only been matched once in the last one hundred and fifty years - during the Great Depression of the 1930s. 

"Although it has been difficult for value investors and their customers, when the spread of valuations has reached this level in the past, future returns for value investors have been significantly stronger.”