Woodford reduces tobacco for domestic UK

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Neil Woodford has cut his Equity Income fund’s position in British American Tobacco in order to fund his contrarian bet on the UK economy.

The fund added to Barratt Developments, British Land, Taylor Wimpey and Lloyds – positions he initiated last month as he warned investors were too pessimistic on the UK, pointing to an improving employment and credit environment.

The Equity Income fund returned 1.7 per cent over the last month compared to 4.4 per cent in the FTSE All Share and 3.6 per cent in the IA UK Equity Income sector.

Woodford has also initiated a position in construction company Countryside Properties and participated in placings for intellectual property commercialisation businesses Malin and IP Group and consumer finance investment business Honeycomb Investment Trust.

British American Tobacco reached an all-time high during the month, in contrast to its tobacco peer Imperial Brands, which was the fund’s main detractor from performance for the month, Woodford head of investment communications Mitchell Fraser-Jones notes. “Imperial Brands now looks by far the more appealingly valued of the two.”

British American Tobacco “looks as fully valued as it has ever done in modern market history”, says Fraser-Jones.

“In some respects, we are reluctant to reduce our exposure to such a high quality, dependable growth business, but its valuation makes it an obvious candidate to reduce in the ongoing fight for capital.”

Woodford also initiated a position in Vodafone in his new Income Focus fund. Last month he revealed the fund’s entire portfolio, including AstraZeneca, Legal & General, Imperial Brands and Provident Financial.