Neil Woodford has gone on a “contrarian” shopping spree buying domestically-focussed UK companies as Theresa May’s announcement of a snap general election fortifies his conviction in the country’s economy.
Among major moves this month, the star fund manager sold out of GlaxoSmithKline and initiated a position in brick maker Forterra and Lloyds – significant banks have been most absent from his portfolio for more than a decade.
He has also trimmed his position in British American Tobacco, while building positions in housebuilding, property and construction stocks.
In a video explaining the major portfolio moves, Woodford says investors are too pessimistic about sterling weakness and its impact on inflation.
“We’re at record levels of employment in the UK. Job vacancies are at a record level and of course the one other very big significant factor which I’ve been waiting for for some time is that the credit environment has begun to normalise in the UK.”
Speaking on Theresa May’s announcement of a general election scheduled for 8 June, head of investment communications Mitchell Fraser-Jones says: “The news has also fortified our growing conviction in an increasingly positive outlook for the UK economy, which now looks set to benefit from a prolonged period of economic and political stability.”
The election announcement facilitated positive performance for the UK Equity Income fund in April as sterling strengthened causing domestically-focussed stocks to fare better than the multinationals that dominate the index.
The fund returned 1.1 per cent over the month compared to a loss of 0.4 per cent in the FTSE All Share.
The fund has also initiated positions in Barratt Developments, Taylor Wimpey and student accommodation developer, Watkin Jones, construction materials businesses Eurocell and Topps Tiles, real estate businesses British Land, Hansteen, Londonmetric and Sirius Real Estate, technology service companies Softcat and Micro Focus and retailer Card Factory.
It participated in the IPO of Eddie Stobart Logistics, a subsidiary of Stobart, which the fund already owns.
Fraser-Jones says: “We have been keen to take advantage of what we see as a compelling, contrarian opportunity in domestic stocks and the portfolio is now poised to capture that opportunity.”
Back in banks
Laith Khalaf describes Woodford’s position in Lloyds as “a bit of a milestone”, given he hasn’t held banks in his portfolio since 2003, aside from a very brief flirtation with HSBC in 2014.
“Selling out of banks was one of the big calls Neil Woodford made which protected investors from the worst ravages of the financial crisis, and reaffirmed his reputation as an outstanding fund manager,” Khalaf says.
Lloyds is the most popular stock held by DIY investors with Hargreaves Lansdown and Khalaf argues it is the most attractive banking stock in the FTSE.
Fraser-Jones says formuch 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.
But he argues that process is now largely complete, evidenced by the recent pick-up in bank lending activity.
“Specifically, 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 level of dividend.”