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Woodford buys Lloyds, sells Glaxo in fund overhaul

Woodford buys Lloyds, sells Glaxo in fund overhaul

by Daniel Grote May 12, 2017 at 14:03

Neil Woodford has bought into the UK banking sector he is famed for shunning during the financial crisis, snapping up shares in Lloyds (LLOY), while selling GlaxoSmithKline (GSK), the pharmaceutical giant he has owned for more than 15 years.

Woodford has bought a £207 million stake in the bank for his £10.1 billion Woodford Equity Income fund, with the stock sitting just outside his top 10 holdings.

'We view Lloyds as a well-managed bank with a conservative approach to its balance sheet. Its valuation looks very attractive in our view, and it has the ability to pay a very healthy and growing dividend,' said Woodford Investment Management in an update to investors.

'For most of the post-financial crisis period, the UK banking system hasn't been functioning normally because it has been in a prolonged process of rehabilitation - rebuilding capital and slowly recognising losses that were incurred during the crisis.

'Importantly, that process now appears to be largely complete in the UK, as evidenced by the recent pick-up in bank lending activity and, although the banks will likely continue to rebuild capital, the domestic banking sector looks more attractive as an investment proposition than it has in many years.'

Barring his investment in HSBC (HSBC) towards the end of his time at Invesco Perpetual, a position replicated in his Woodford Equity Income fund but then sold shortly after launch, the Lloyds investment marks Woodford's first foray into high street banking since before the financial crisis.

Woodford's shunning of the banks in 2008, alongside his refusal to be drawn into the dotcom bubble at the turn of the century, are the two crucial investment calls on which the manager has built his reputation.

But he had given signals earlier this year that he was preparing to buy back into banks, hailing Lloyds as 'broadly repaired' and claiming banks looked 'more investable than they have been for a long time'.

Glaxo sold after 15 years

The manager has meanwhile dumped his £640 million stake in GlaxoSmithKline after 15 years as an investor, having failed in his attempts to press for a break-up of the business, citing concerns about the one bright spot of its business, its HIV franchise.

'Over a holding period of more than 15 years, I have consistently believed that GlaxoSmithKline was capable of delivering growth and realising shareholder value,' he said. 'Neither has been forthcoming to the extent that I had hoped and expected.'

He said investing in GlaxoSmithKline had been a 'frustrating experience', describing its pharmaceuticals, consumer healthcare and vaccines divisions as 'perennial underperformers'.

Woodford said he was acting on fears about its HIV business. 'I have become more concerned about the prospects for the one Glaxo engine that has been firing on all cylinders,' he said, pointing to the potential threat of rival drugs from US biotech firm Gilead (GLD.O).

The manager has long agitated for a break-up of the business, but said he had been 'ultimately ignored – repeatedly' by previous chief executives Jean-Pierre Garnier and Andrew Witty.

With Emma Walmsley having taken over as chief executive last month, having portrayed herself as the 'continuity candidate', Woodford said the prospect of a break-up 'now looks more remote than ever'.

'My base assumption now... is that Glaxo remains a healthcare conglomerate with a sub-optimal business strategy, and shareholders face a cut to the dividend. These characteristics do not appeal to me as an investor.'

Bullish on British economy

Woodford has quickly put the GlaxoSmithKline money to work, buying a host of cyclical UK stocks focused on the domestic economy, in a 'strategic shift' based on his view that the UK economy is better placed than most believe.

'I'm more bullish about the domestic economy than consensus and at the same time that bearish consensus on the UK has resulted in very big share price falls in some domestic cyclical sectors and that's offered up some very interesting opportunities,' he said.

Stocks he has bought for the fund in April include:

  • house builders Barratt Developments (BDEV) and Taylor Wimpey (TW);
  • real estate businesses British Land (BLND), Hansteen (HSTN), Londonmetric (LMPL) and Sirius Real Estate (SRET);
  • technology companies Softcat (SCTS) and Micro Focus (MCRO);
  • construction materials firms Eurocell (ECEL) and Topps Tiles (TPT);
  • brick manufacturer Forterra (FORT);
  • student accommodation developer Watkin Jones (WJG);
  • retailer Card Factory (CARDC) and
  • distribution business Eddie Stobart Logistics (ESLE).

Woodford said exposure to domestic 'cyclical' stocks, whose fate is more strongly tied of the UK economy, now made up around 30% of the fund.

'It is the first time in a long time that you've seen a move of this type in the portfolio,' he said. 'But I have in the past been very exposed to domestic cyclicals. I have in the past had very big weightings to banks. Not for a very long time but I've had those sorts of exposures before. And then in many ways this is a repeat of what the portfolio looked like in periods gone by.'

The move represents a doubling down on the sector of the market that has most hurt Woodford over the last year. The Woodford Equity Income fund remains the top performer in the UK Equity Income sector since its launch in June 2014, but over the last 12 months ranks 72nd of 83 funds, with the manager's major UK domestic holdings, like Capita (CPI) and Next (NXT) the biggest drags on performance as they were hit hard by the Brexit vote.

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Comments  (16)

  • SDRL: 

    This is precisely why I prefer individual stocks to funds. Woodford has sold recently BAE, RMG and now GSK. Now he has purchased a bank when the banks have recently run up in share price. I like to buy individual stocks and generally speaking hold those shares. I don't think of them as trading cards but as ownership in a company.

    15:07 on 12 May 2017

  • HETTIE1: 

    Hi SDRL, I also prefer individual stocks to funds, had my Lloyds awhile now , glad to know the funds are following the little Invester,s meaning me there, SDRL, you might not be so, mind have think 12 stocks do like picking my own

    16:26 on 12 May 2017

  • p r: 

    He is the most OVERATED manager ever.

    Selling GSK for lloyds when markets are at close to PEAK.

    He also messed up by buying NEXT a while back.

    Think he is in a PANIC mode.

    17:17 on 12 May 2017

  • albion: 

    Woodford referred to in 3 articles in the latest email Daily Summary. Even for Citywire that is obsessed with this man that is remarkable.

    04:15 on 13 May 2017

  • Micawber: 

    Not for me. We did well out of Woodford from the late 1990s to the time he quit the discipline of Invesco Perpetual, but baled out then. Some of his judgments lately (eg last autumn, that the Fed wouldn't raise interest rates), have been badly awry, and I think his shift towards the domestic facing UK economy now is another poor and highly risky call. I look forward to my Glaxo rising now his selling pressure is at an end....

    07:33 on 13 May 2017

  • g hen: 

    All you little guys are doing very well indeed but you know absolutely nothing about the companies in which you are investing.

    You will be tramping all over each other in the panic to reach the exit door when the market takes its next big drop!

    10:13 on 13 May 2017

  • HETTIE1: 

    Don't think so,ghen, my first time in market was just before the 1987 crash, & that taught me a lot, I sold my banking shares just before they all dived this time, as you could see that coming am pleased with my own stock picking

    11:10 on 13 May 2017

  • William Phillips: 

    Good job Woodford is not running an ethical fund. Neither Barclays, HSBC, Lloyds nor RBS would be eligible. They are the suppurating boils on the backside of British business.

    11:13 on 13 May 2017

  • g hen: 



    11:37 on 13 May 2017

  • HETTIE1: 

    Hey I don't hang on , have sold & bought many since then , just to mention a few I could mention, Kingston communications , Yorkshire tv, pace, bought at £1 each sold at over £11 per share, many more not quite as good as these, but am in now with what I call fun money , do love picking shares , my broker used to say I don't know how you sleep at night, plus have held a few unit trusts, just too slow for me , even now mind one I missed only couple months ago M&S, were £2, but watch out Archie Normans about he also made me quite a bit with Asda , but am happy with my shares at moment,

    11:56 on 13 May 2017

  • Mr J: 

    Well it's decisive I suppose. I just struggle with such rapid changes of thinking for a fund manager that is supposed to run a long term perspective.

    GSK was a top holding and he was so positive that the percentage holding was well above the usual fund maximum of around 5% of portfolio. The story was that the patent expiry worries were overdone and there was a strong new drugs pipeline coupled with an ageing population and massive BRICS population of new drug buyers. Suddenly within a month that story is wiped out ? Almost feels like a fit of pique because 3 successive CEO s won't take his advice. If it was a perennial underperformer why did he hold it for so many years anyway.

    12:52 on 13 May 2017

  • Colin Thatcher: 

    I like Neil Woodford and am willing to give him the benefit of doubt. His bad mistakes are continuing to hold Capita...known, I have heard as Crapita at University College Hospital where I believe they have a contract and BIG disaster Northwest Biotherapeutics run by Linda Powers who was at Enron (remember that) I would not have touched any stock run by anyone who had even driven past Enron. Bad judgment, yes but his long term record means he should be forgiven FOR NOW!

    13:44 on 13 May 2017

  • Franco: 

    Buying individual shares is of course more profitable than buying managed funds but requires far more work and devotion to keeping informed. Managed funds are safer and easier, but certainly make you pay through the nose for the privilege.

    Simplest and more profitable than either of them are index funds which you buy and hold for life. Recommend you look at once a year. And if life then gets boring and you want some amusement, read the excuses managers of active funds make for under performing the market. Excuses and apologies, yes. Return of the money they took off you, no.

    14:12 on 13 May 2017

  • Rich John: 

    Yes, the possibility of it being a fit of pique because the CEO's wouldn't heed his wishes to split the company up occurred to me too.

    We do still have an aging population and a strong demand for pharma products. I hold GSK for the dividend.

    I don't buy funds, but I do buy IT's and some companies direct. I hold both GSK and LLOY.

    16:41 on 13 May 2017

  • Michael Stevens: 

    GSC share price has risen. How good is Woolford? Perhaps better sell his funds.

    20:56 on 13 May 2017

  • g hen: 

    It looks as if GSK has lost focus on what it wants to be going forward and unfortunately for the shareholders but fortunately for the country as a whole,it is too big to be taken over.

    So where is the upside on the price?

    Maybe the CEO will change her mind and sell off some assets?

    A lady can change her mind.

    09:37 on 17 May 2017

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