It seems that Mark Barnett is beginning to make his mark on the Edinburgh Investment Trust, a portfolio formerly managed by Neil Woodford.
Woodford, a man about as inconspicuous and modish as Uluru when it comes to taking and holding positions, is a difficult act to follow, but Barnett seems to have set about the task by significantly diluting some of his predecessor’s biggest positions. GlaxoSmithKline and AstraZeneca, which on Woodford’s watch had each weighed in at about 9%, have been hacked back to a much more discreet 5.5% each, and the top ten positions, which at the end of November had totalled 62%, now comprise a more conventional 49%. It looks as if the money raised by the pharmaceutical sales has been invested in financials, although hopefully not annuity providers.
This activity looks to be moving Edinburgh in the direction of Barnett’s other portfolios, namely more smaller company positions and fewer outsize bets on select corporate giants. It is difficult to see, at this point, what is happening at the other end of the portfolio, but I would guess that many of Woodford’s tiny positions have been sold also. Barnett’s record is excellent and, of course, there is more than one way to cook a potato, but I am a bit disappointed to see a reduction in the big bets. Woodford was unusual for a fund manager in his willingness to back himself so heavily when he was confident about a company. For a manager investing as much money as he was, particularly on behalf of such a mainstream fund, to place such huge bets on single companies (AZN and GSK) was rare and it was always interesting to follow somebody who actually lived up to the maxim: if you are going to swing the bat, make sure you follow through. Of course, while it is one thing to admire somebody who has courage in his convictions, it is even more admirable when he also turns out to be correct in those convictions.
Woodford is best known for his huge and long-standing bet on the tobacco sector. At the time of the dot-com nonsense, when money was being poured blindly into technology funds and the tobacco companies were fully occupied hiring lawyers and standing in court rooms, Woodford was steadily accumulating the tobacco shares that nobody else wanted. He was right to do so and British American Tobacco was the standout stock market performer of the noughties, beating every other stock in the FTSE 100. Indeed, even towards the end of his time in charge of the Invesco Perpetual equity income portfolios, he had a more than 15% allocation to the tobacco sector. It will be interesting to see if he retakes a similarly-scaled allocation with new money, when he sets up his next fund in the coming months.
Another aspect of Woodford’s management style that will be hard to follow, at least initially, is his clout with corporate managers. In recent years companies like Omega Insurance, BAE Systems, and AstraZeneca, have felt the full force of his opinions, as he goes in to bat for his investors. His guns have been more recently trained on politicians, that high-principled breed, in the aftermath of some of their more populist promises with regard to utility bills. I suppose, when you represent such a large proportion of the shareholder register, doors open automatically, but it is a shame that a few more managers don’t take advantage of the opportunity to bend corporate managements’ ears, on occasion. Although even Woodford, I fear, will struggle to gain much traction with the political class. Anyway, speaking up for his investors is something that that Woodford does take seriously and he says “Lots of people vote but do not say or do any corporate engagement… I am an exception in the industry. I take corporate engagement very seriously and I spend a lot of time on it.”
All in all, as for David Moyes succeeding the great Sir Alex Ferguson at Manchester United, Barnett certainly has a tough act to follow. Hopefully he will avoid poor signings and get a bit of luck along the way in his on-going battle with the tyranny of the index. But, as with David Moyes, he will stand or fall by his results.
Disclosure: Long BATS, GSK, AZN.
Disclaimer: This post is not a recommendation to either buy or sell. Please consult your investment advisor.