August is typically a sleepy month for stocks, with many of the Square Mile’s decision-makers off sipping cocktails in the south of France. But this year, regular profit warnings hammered portfolios, and markets remained volatile. Neil Woodford felt the brunt, but there were opportunities, too. Here’s what the star manager has been buying and selling over the past month.
Forget AstraZeneca (AZN) and Provident Financial (PFG) for now – Woodford has taken enough stick for those two laggards. Instead, it’s one of the less well-known Woodford stocks that broke down recently.
AA (AA.), the roadside breakdown and insurance provider is a familiar sight on motorways, but it’s run into trouble this year. Last month, it sacked executive chairman Bob Mackenzie sending shares down 15%. All told, between 31 July and 4 September, the stock slumped 35%. While shares have come off that 159p nadir, they still languish around all-time low levels.
There has been a trend for earnings downgrades, but a 6% cut to this year’s earnings estimates is “disappointing… but hardly catastrophic”, while MacKenzie’s departure “does not disrupt the investment case”.
And Woodford is undeterred, buying more for his Woodford Equity Income fund.
“Some aspects of the trading update, such as membership numbers and cash generation, were encouraging,” read his latest fund update. “The shares’ disproportionate reaction just underscore how warped the market’s behaviour has become in recent weeks.
“From our perspective, the logical thing to do when shares are under pressure for non-fundamental reasons, is to add to the position, which is exactly what we have done with the AA.”
The AA accounts for 0.78% of the Equity Income’s portfolio and 1.09% of Woodford Income Focus’s portfolio. Investors will be hoping this is more akin to his bet on Hostelworld (HSW) than Provident. The HSW slumped 60% between April and June last year after disrupted trading, leading Woodford to buy more shares. It’s since bounced to fresh all-time highs.
Elsewhere in the Equity Income fund, Woodford “took advantage of unjustified share price weakness” in the likes of British Land (BLND), IP Group (IPO) and Lloyds Bank (LLOY). It also participated in the IPO of Strix, a manufacturer of kettle safety products, and took part in a fundraising by Horizon Discovery (HZD).
Woodford says he is supportive of IP’s merger with Touchstone Innovations, which is edging ever-closer to completion. The deal “forms a scaled business, with an exciting combined portfolio of science-based British businesses across a diverse and complementary range of sectors”.
AbbVie is out after a spell of good performance that means it’s “no longer attractive”, while the holdings in Capita (CPI) and Legal & General (LGEN) were slightly reduced.
While he still maintains his stake in Provident – he owns a fifth of the company – hedges are in place. His Income Focus fund recently topped up its exposure to Morses Club (MCL) in August, a company that is reaping the benefit of PFG’s demise. Combine that with his stake in Non-standard Finance (NSF) and he’s got the doorstep lending market locked down.
It’s also increased its stake in Crest Nicholson (CRST) and Imperial Brands (IMB) and added Strix and Drax (DRX).
At the Patient Capital (WPCT) investment trust, Woodford has taken part in a fundraising at Tissue Regenix (TRX) linked to the “transformational” acquisition of Cellright Technologies. He’s also bought more of Norwegian printed electronics business Thin Film Electronics.
“[We] believe the company is on the cusp of meaningful, large scale commercial breakthroughs for its innovative technology, which has numerous applications related to what is now being called the ‘internet of everything’,” he says.
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.