There’s never a shortage of market commentary, whether macroeconomic or company-specific. As investors we’re exposed on a daily basis to so-called industry experts who happily give their view about how they’re positioning their fund or investment trust for the days, weeks and months ahead. With so much information, it can be overwhelming to investors new and old as they try and absorb the data and reports that flow around the web.
Cut through the noise
For the most part I tend to ignore most of the news and try to concentrate on the company. However, there are some commentators that I do listen to, so when Neil Woodford hosted a Q&A session at the start of this week I thought that I’d take a closer look. After all Mr Woodford has been right more times than he has been wrong – although he can often be right a little too early.
Welcoming banks back to the fold?
One thing is sure – Neil Woodford is no index-hugger – he’s never been afraid to avoid sectors like oil & gas and banks, despite their index weighting. Indeed he can be very outspoken about companies that in his view are failing. I remember his comments regarding Tesco when the first profit warning was issued – his sale turned out to be the correct call, even though it was a little ahead of time.
However, during the Q&A session he was asked whether he would invest in Lloyds Banking Group (LSE: LLOY) – his response was as follows:
“I remain very cautious about the investment attractions of the banking sector. With respect to Lloyds, albeit much improved and arguably more investable than at any stage since the crisis, it is still not sufficiently attractive to warrant a place in the funds. One thing that continues to concern me is the exposure to the UK housing market. Any correction here would shatter the consensual view that its balance sheet is rock solid.”
Correct a little too early?
Neil Woodford has made more correct calls than wrong. However, when I look at the housing sector, while I don’t see the bargains trading below their net asset values that we saw back in 2012, I do see a sector on the crest of a wave. It’s driven by low interest rates, a structural shortage of houses for the current demand and an economy on the up.
Of course, should the economy start to take a turn for the worse, or interest rates start to rise to combat a rise in inflation, then it’s almost a racing cert that the housing market will crash. As a domestically-focused bank with a strong position in the property market, I wouldn’t be at all surprised to see Lloyds’ share price suffer a similar fate to those of the housebuilders.
And as we can see from the chart below, the share price along with other financial stocks suffered a sharp fall only last month on concerns surrounding a faltering economy and debt going bad.
The Foolish bottom line
As things stand, we private investors have an advantage over institutional money insofar as we can move in and out of liquid stocks like Lloyds with ease. And while I’ll be keeping a close eye on the economy for signs of trouble ahead, I’m not too worried… yet.