Investors are often advised to buy stocks when there’s “blood on the streets”. Having the conviction to act on this advice isn’t always easy, but Richard Buxton reckons that the current crisis in the markets is the perfect opportunity to pick up some unloved financial stocks – and he’s put his money where his mouth is.
As the 43-year-old manager of the Schroder UK Alpha Fund tells Investment Adviser, “there are now some great chances to pick up stocks that have been unfavourably punished in the recent volatility”.
He snapped up Royal Bank of Scotland this month at a dividend yield of 7.5%, because in the wake of the subprime crisis he believes it is “extremely undervalued”, he tells The Sunday Telegraph.
Banking shares have been sold off to an extent only justifiable if the banks can no longer cover projected dividend payments, he says. So either, “there are far more significant problems than the banks are yet revealing, or the shares are simply too cheap. Given the level of dividend cover now available, we believe that investors are being more than paid to take the risk”. On this basis, he’s also bought into Barclays, which has suffered almost as much as Royal Bank of Scotland.
Right now, Buxton is 96% invested in stocks, a strategy that’s served him well so far. The fund has gained 131% over the past five years, earning him a Citywire AAA-rating. However, if the markets do look like they are taking a turn for the worse, Buxton has the flexibility to put 10% of the portfolio in cash and 10% in gilts.
So with uncertain times ahead, UK Alpha could be a good choice for the more cautious investor. “We think his fund could be in a good position to capitalise on the current environment over the long term,” says Darius McDermott of Chelsea Financial Services in the Daily Mail.
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Schroder UK Alpha Fund top ten holdings
Name of holding, % of assets
Xstrata, 4.90
BG Group, 4.80
BP, 4.60
BHP Billiton, 4.60
Reuters Group, 4.10
Charter, 3.60
British Airways, 3.40
HSBC Holding, 3.40
Vodafone Group, 3.00
Wood Group (John), 2.80