As Sylvester Stallone knows, if you find something that works then keep doing it. In the case of his Rocky franchise, this meant that every plot went as follows: 1. Throwing down of gauntlet by unpleasant rival 2. Token picking-up of gauntlet by sluggish Rocky 3. Motivating incident 4. Turbo-charged training session 5. Victory.
In the case of Neil Woodford, it means buying defensive high-yielding shares, specifically Astra, Glaxo, Imperial tobacco, and Capita, and then buying them again and again. If it ain’t broke, why fix it?
Woodford Investment Management has just released its top 10 holdings (incidentally, it promises to release all of its positions later this month, which will be interesting and a minor challenge to rivals – what is the point in keeping a position secret, once you have built it?):
- AstraZeneca 8.30%
- GlaxoSmithKline 7.11%
- British American Tobacco 6.20%
- BT 6.02%
- Imperial Tobacco 5.31%
- Roche 3.90%
- Imperial Innovations 3.60%
- Reynolds American 3.55%
- Rolls-Royce 3.47%
- Capita 3.36%
Consistency
The make-up of this list is remarkably similar to Woodford’s final portfolios when he was leaving Invesco Perpetual; huge holdings of pharma and tobacco with a sprinkling of telecoms and industrials for variety.
In fact, I have dug out an old factsheet from the Edinburgh IT, which Woodford managed, for the end of November 2013; here are its top ten holdings:
- AstraZeneca 9.2%
- GlaxoSmithKline 9.0%
- BT Group 8.0%
- British American Tobacco 6.1%
- Roche 5.9%
- BAE Systems 5.2%
- Imperial Tobacco 5.1%
- Reckitt Benckiser 4.7%
- Reynolds American 4.4%
- Capita 4.2%
The only new positions look to be Imperial Innovations and Rolls Royce (both of which Edinburgh held in smaller quantities). While Reckitt does not look cheap to me, I am surprised to see that BAE does not appear in his new top ten because, if this looked cheap before, it looks even cheaper now. Maybe they will come in at numbers 11 and 12, just before alongside Altria, Sanofi and Novartis. We will have to see if other old favourites Chemring and Morrison reappear in his holdings.
AstraZeneca
Speaking of appreciation, I am surprised that he has taken such a big position in Astra at its current price and has purchased more of it than GlaxoSmithKline. In the last six months, while GSK has slipped slightly, AstraZeneca has become nearly 20% more expensive yet this has not deterred Woodford from wading back in to make it–once again–his biggest position. While he must know the company intimately (apparently he was influential in the replacement of former CEO David Brennan with Pascal Soriot), building a position of this size with the P/E at 15 is very different to building it when the P/E was 7. This vote of confidence bodes well for AZN shareholders and it is certainly reassuring to know that the redoubtable Woodford will be keeping guard over goings-on at AZN HQ.
BAE Systems
The demotion (at best) or possibly even total shunning of BAE Systems is also surprising, given Woodford’s history with the company. Indeed it is another where he brought his influence to bear not so long ago, when they foolishly (according to him) attempted to merge with EADS. To my eyes, BAE is cheap with a P/E of 10, dividend yield of 4.8% and the prospect of return to growth on the Saharan horizon. I have also seen them mooted as a takeover candidate for one of the big American defenders–that would be another Mother and Father of a political row, if a bid ever does occur. Although, due to its golden shares, at least shareholders know the rules with this particular engagement.
Imperial Innovations
Imperial Innovations is the elephant in the room of the new line-up. An aim-listed operation weighing in at a relatively lightweight £600m, IVO does not even pay a dividend and so to have it take up a spot in the top ten is a big commitment. According to its website, Imperial Innovations works to commercialise and build businesses from UK university research. It has proprietary access to intellectual property developed at Imperial College London and “strong networks” around London Cambridge, and Oxford.
Last month IVO raised £150m that it said will be used to support its portfolio companies, source investment opportunities, and for general corporate purposes. The Ventures page on their website has details of its current interests and this is well worth a read. The ventures include therapeutics, medtech, engineering & materials and ICT/Digital businesses.
After Imperial College itself, Lansdowne Partners is the second biggest shareholder, followed by Woodford and Invesco (who must have retained its holding after NW departed). This looks a very interesting company and one that might be more fun to follow than, for example, Capita.
Anyway, Woodford is back, and it is pleasing to see that he does not seem to have changed his opinions, convictions, or modus operandi.
Disclosure: I hold positions in AZN, GSK, BATS, BT., RR. IMT, RAI, BA. and CPI.
Disclaimer: This post is not a recommendation to either buy or sell. Please consult your investment advisor.