Interactive Investor

Neil Woodford's five Brexit bargains

22nd July 2016 10:56

Kyle Caldwell from interactive investor

Fund manager Neil Woodford was surprised by the British public's decision to leave the European Union - but, rather than sitting still, the respected investor moved to take advantage of the initial volatility following the vote.

He has topped up five holdings in his CF Woodford Equity Income fund. He comments that each business suffered "indiscriminate share price falls".

Woodford notes that there was a rotation away from domestically focused stocks to those with a greater global footprint in the sell-off that occurred during the first couple of trading days after markets opened on 24 June.

Extreme market reaction

Woodford remarks that the initial market reaction was extreme. He says: "This move was largely indiscriminate, at least regarding valuations, as many market participants appeared determined to make the switch at almost any cost."

He added to Legal & General (down more than 30% in the immediate aftermath of the Brexit vote) and Provident Financial (down more than 25%).

"As primarily UK-facing businesses, both of these companies have been bracketed with a group of other domestic cyclicals and financials, which a large number of investors have simply wanted to exclude from their portfolios, regardless of valuation or prospects," says Woodford.

"In our view, this is a mistake. We have spoken to the managements of Legal & General and Provident Financial since the referendum and have concluded that both businesses remain well-placed to deliver very attractive rates of sustainable dividend growth in the years ahead."

Woodford also took advantage of share price weakness to add to his positions in Babcock International, Capita and New River Retail.

Recession should be avoided

On the economy Woodford comments that he does not think the Brexit vote will change much. He adds, however, that the UK economy may slow more than it would have done in the short term.

"But policy measures, both explicit (looser monetary and fiscal policy) and implicit (sterling devaluation), should mean recession is avoided," he says.

"Both the UK and the world face far greater challenges than Brexit, with ebbing global growth, excessive debt, stagnant productivity, deteriorating demographics across developed economies and continued signs of a troublingly prolonged slowdown in China.

"Accordingly, our investment strategy remains unchanged as we continue to be cautious on the outlook for the UK and indeed for the global economy."

Since launch in June 2014 CF Woodford Equity Income has returned 24%, ahead of the average fund in the Investment Association's UK equity income sector, which is up 7%.

His Woodford Patient Capital Trust is down 10% since it launched last April. Woodford has previously stressed the trust - as its name implies - has invested in "some incredible businesses" that may "take a long time to fulfil their potential".

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.