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Heavyweights clash on defensives

Richard Buxton and Neil Woodford, two high-profile British equity managers, are at odds on their view of traditional defensive stocks.

Woodford, who runs more than 18 billion in equity income portfolios and mandates for Invesco Perpetual, has long favoured companies in the pharmaceuticals, telecoms, tobacco and utilities sectors.

But Buxton, the manager of the 1.4 billion Schroders UK Alpha Plus fund, says many stocks in these sectors are not true defensive plays because of the debt on their balance sheets.

Speaking at Schroders annual investment conference in Edinburgh last week, Buxton said: We are in the opposite of what Woodford owns. We disagree that utilities are safe we dont think they are defensive at all because they took on lots of debt when it was cheap.

Buxton bought GlaxoSmithKline because he had not held the stock for some time, and he concedes that Tesco, Royal Dutch Shell and Unilever are at reasonable valuations. But the manager is more positive on other sectors, including consumer services, financials including banks, and oil and gas.

The best contributors to performance on his fund over the 12 months to April 30 were BG Group, Experian, HSBC, Next, and Thomson Reuters. Our top five contributors were added to during the low point in Q4, which is pleasing, Buxton said.

Buxton remains supportive of the banking sector, with 3% in Lloyds, 2% in Royal Bank of Scotland and 3% in Standard Chartered, although he has trimmed his holding in Barclays to less than 5%. He does not own HSBC but says this is not because he feels it is a bad bank, he just sees more upside in its competitors.

Buxton was a consistent buyer of banks as their share prices tumbled. He has been able to add to holdings, not just in the banking sector, at depressed valuations.

What we are doing in the portfolios is the reverse of what we were doing in the fourth quarter, he said. We can see material upside, but you have to accept you may lose a third if risk appetite deteriorates. You have to be in stocks you fundamentally believe in over a two to three-year view.

Related Articles:
Manager focus: Richard Buxton
Woodford: recovery is a long way off

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