Shares to buy, hold and sell
Richard Buxton has run the £2.04 billion Schroder UK Alpha Plus fund since its launch in 2002. The fund is a concentrated, high-conviction portfolio focused on UK companies, and is mandated to achieve capital growth.
With no benchmark to track, Buxton is free to invest for best returns across different sectors.
Over the past five years, the fund returned 50.8%, compared with 23.1% from the FTSE All-Share index. Here Buxton talks to Cherry Reynard about the last shares he bought and sold, and the one he's holding on to.
"One of my most recent purchases has been Debenhams. This had been a 'problem' stock – having been owned by a private equity group, it came back to the market in 2006 with too much debt at too high a price.
"Its management did a rights issue last year to sort out the debt question, but the real reason I like it is – perversely – because the market dislikes it so much.
"The market is currently wildly negative on anything related to the consumer or to retail; the consensus is that due to job losses and VAT rises shoppers will stay at home.
"I'm not expecting it to be a picnic, but it's not going to be Armageddon either. I accept that there's a potential problem with 600,000 public sector job losses, but the key is the extent to which the private sector absorbs them.
"In the last big public sector contraction in the early 1990s, around 600,000 jobs were shed, but over the next four or five years, the private sector added 1.8 million. I admit it won't be anything like that this time, but it shows it can be done.
"Debenhams is a good solid retailer and its management has been in place a long time. The group's problems were simply the valuation and high debt, and now that those have been dealt with, it should prove robust."
"Burberry has been a long-term holding of mine, and although it's had a fantastic run, I'm keeping it in the portfolio.
"Luxury goods have continued to do better than non-luxury ones in the downturn, and Burberry has plenty of opportunities to extend its reach. It's extending its shelf space in the big US department stores and expanding in Asia.
"In many ways, it's a play on the non-UK consumer. It has a high-profile presence in London but the majority of its sales come from overseas. It has a joint venture in the Middle East, for example, and it's a beneficiary of the rise in the Asian consumer market – they love brand names there.
"It also has fantastic management. The latest chief executive, Angela Ahrendts, has done an excellent job. For example, Burberry was a more mass-market brand in Spain.
"Given that the Spanish market was so weak, Ahrendts decided to take the hit and bring its Spanish division in line with the global brand. This was an indication of management strength.
"When Burberry's share price collapsed during the downturn, I took the opportunity to buy more stock. As it was, its earnings continued to grow throughout the recession, and it still has a lot of potential for growth – it has just launched a kidswear range, for example."
"I've been gradually selling out of Tesco and have now completely got rid of our holding. I believe that the UK business has become increasingly mature – due to the fact that as a company grows it generally becomes harder to maintain the same level of growth.
"It's still growing its services business and is expanding in overseas territories such as Thailand. However, I have real concerns over whether it can make money in the US.
"The company has thrown £1 billion at its 'Fresh & Easy' business, but it's still loss-making. I'm worried that Tesco's management has been struck by the age-old problem of overconfidence – it wanted to test itself against the big boys in the US, but it's unlikely to cut the mustard.
"That said, Tesco is still a strong company, with very good management. The share price is not expensive on a price-to-earnings basis, though the company does have quite a lot of debt. So it's not dreadful by any means; I'm simply concerned that its management has overreached itself.
"My portfolio is high-conviction, which means that a company has to be capable of doing something exciting for me to hold it. I've got a lot more conviction in stocks such as Debenhams."
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.