The banking sector is facing some “very challenging headwinds” and is a “pretty impenetrable” business, says Neil Woodford, which is why he is not invested in the sector.
Woodford, speaking at the AJ Bell Investival conference, says he has been out of the banking sector for “a long time” and largely because he finds the businesses too difficult to analyse.
“I think it was Warren Buffet who said if you didn’t understand a sector it’s probably not one to invest in,” he says.
Woodford previously owned HSBC for a brief period last year in the Woodford Equity Income fund, but dumped the stock two months after buying it.
At the time he blamed the increasing cost of fines for banks, and that he felt large banks were being hit disproportionately hard with fines.
“One of problems I have with the banking sector is I find them to be pretty impenetrable businesses these days and I think I find HSBC to be one of the most impenetrable of the banks, so that’s not a good starting point,” says Woodford.
While it’s possible to push through some of those problems and analyse what he can, Woodford thinks he can get better returns elsewhere.
“I don’t think they are offering an attractive prospect over the next three to five years, but I hope to be running money for a lot longer than that. There may well come a time when they feature prominently in my portfolio but I don’t see that happening for a very long time,” he adds.
However, Woodford has not ruled out a return to HSBC.
“If I had to own a bank I would probably own HSBC. I think it is a well run bank in attractive long-term growth areas of the world with a fantastic franchise,” he says. “But in the medium-term life will remain very, very tough for HSBC, as it will for other banks like HSBC and some of the domestically focused banks too.”