Woodford’s value calls start to pay off

Neil Woodford’s Invesco Perpetual income funds have leapt to the top of the UK performance tables after two years of underperformance as the manager’s value calls finally start to pay off.

Despite facing heavy criticism, the head of investment stuck with defensive positions, including overweights to pharmaceuticals, tobacco and telecoms, throughout the market rally in the belief it would pay off over the longer term.

Six months ago the funds were in the bottom quartile over three months, but now take the top two spots in the UK Equity Income sector over the same timeframe.

Lipper data shows seven out of Woodford’s top 10 stocks in the funds have generated a return in excess of 6% in that time, with some producing as much as 11%.

At the end of December, the £10.6bn High Income fund was ranked 95 out of 103 funds in the sector over three months, while the £8.4bn Income fund was 98, according to Morningstar.

In an investor conference call in March, Woodford said he had expected to underperform in the initial market rally as he held no cyclicals, but he was surprised how long the rally had lasted.

Woodford said: “We have had a difficult period. My focus on valuation has not chimed with the markets obsession with momentum.

“Markets have been ignoring companies outside of the cyclical recovery story.”

As unrest continues in the Middle East and Africa, and rising oil and gas prices make investors nervous, markets appear to be turning in favour of Woodford’s defensive calls.

Soaring tobacco and pharma stocks have pushed the High Income fund to the top of the sector, returning 7.7%, while Income is second.

The largest holding, AstraZeneca, worth 8.5% of the High Income fund and 8.4% of the Income fund, has returned 6.4%. Other pharma stocks in the top 10 include GlaxoSmithKline, which has increased 9.8% in value, while Roche has generated 8.4% over the three-month timeframe.

Tobacco firms featured in the top 10 – Reynolds American, Imperial Tobacco and British American Tobacco – have also had a stellar few months, with Imperial Tobacco returning 11.97% on the back of strong performance in emerging markets.

The telecoms sector has not fared as well, with Vodafone falling 11.1%, while BT made a small gain of 2.35%.

An Invesco Perpetual spokesperson said: “The increasingly weak economic outlook for both the UK and overseas is as Neil has been expecting.

“The stock market’s renewed focus on value should have much further to run, and the Invesco Perpetual High Income and Income funds are positioned to benefit accordingly.”


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