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Why Neil Woodford just bought Lloyds Bank shares
By Lee Wild | Fri, 12th May 2017 - 14:17
After a "disappointing" 2016 and embarrassing collapse in the value of his stake in Allied Minds (ALM), star fund manager Neil Woodford has spent the past few weeks knocking his portfolios into shape.
"Neil has been keen to take advantage of what he sees as a compelling, contrarian opportunity in domestic stocks, which have become too cheap to ignore in the wake of the Brexit vote last year," we're told.
A strengthening of the pound following Theresa May's decision to call a snap general election for 8 June is also reflected in the equity market, and it's "fortified" Woodford's "growing conviction in an increasingly positive outlook for the UK economy".
With the UK tipped to benefit from a prolonged period of economic and political stability, the Woodford Equity Income fund delivered a positive return in April, outperforming its benchmark which fell.
Provident Financial (PFG), Redde (REDD), BTG (BTG), Hostelworld (HSW) and Legal & General (LGEN) are picked out as drivers last month, offsetting grim news at Allied Minds and underperformance at 4D Pharma (DDDD), AstraZeneca (AZN) and US biotech Prothena (PRTA).
And Woodford's picked a new crop of stocks – 15 in fact – to build greater exposure to domestic cyclical businesses. Funded by inflows and the sale of some British American Tobacco (BATS) shares and the entire holding in GlaxoSmithKline (GSK) (the business has driven him mad for years), he's bought a stake in Lloyds Banking Group (LLOY).
Banking on Lloyds
Woodford hasn't owned bank shares - warrants on economic growth, he says - since bailing out of HSBC (HSBA) in 2014, arguing that Britain's banking system hasn't been functioning normally for much of the post-financial crisis period.
But that rehabilitation "appears to be largely complete in the UK" given the recent pick-up in bank lending activity, and the domestic banking sector "looks more attractive as an investment proposition than it has in many years.
"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."
Building is big business, too, according to Woodford. It explains the purchase of a stake in UK brick manufacturer Forterra (FORT), one of the last remaining players in a consolidating industry.
It has "a solid market position and a low cost base", and the weak pound now means importing bricks from Europe is no longer as economic, implying long-term prospects for Forterra "look very attractive".
"We believe the company is well-positioned to benefit from steady growth in the UK construction industry in the years ahead and took the opportunity to buy a meaningful stake in the business at what we consider to be a very appealing valuation," say Woodford's team.
Staying with the building trade, and Woodford has found space in the portfolio for Barratt Developments (BDEV) and Taylor Wimpey (TW.), student accommodation developer Watkin Jones (WJG), construction materials firm Eurocell (ECEL), Topps Tiles (TPT), real estate giant British Land (BLND), smaller peer Hansteen (HSTN), Londonmetric (LMP) (distribution warehouses and conventional retail parks) and Sirius Real Estate (SRE).
Woodford's also now on the shareholder list at technology service companies Softcat (SCT) and Micro Focus, (MCRO) and retailer Card Factory (CARD). He also participated in the IPO of Eddie Stobart Logistics (ESL).
"We remain very confident that the fund is well-positioned to deliver attractive long-term returns to investors," he says. Investors will be relieved.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
|MICRO FOCUS INTERNATIONAL||1,272.00p||-0.31%|
|SIRIUS REAL ESTATE LTD||64.00p||4.92%|
|BRITISH LAND CO||666.60p||0.88%|
|BRITISH AMERICAN TOBACCO||3,965.50p||3.00%|
|LEGAL & GENERAL GROUP||267.10p||-4.06%|
|LLOYDS BANKING GROUP||64.90p||-0.15%|
|EDDIE STOBART LOGISTICS||143.00p||-0.69%|
|All data 15min delayed as of: 00:14:11 27/04/18|