Neil Woodford has received considerable media attention this year. The UK’s best-known fund manager has suffered some spectacular losses in 2017 including Provident Financial, which has fallen nearly 70%, and AA, which is down around 45%. As a result, his year-to-date performance has been underwhelming, to say the least.
Indeed, to the end of September, his marquee fund, the CF Woodford Equity Income fund had returned just 1.2% for the year, compared to a 7.8% return for the FTSE All Share index and a UK equity income sector average of 8%. That’s a significant underperformance.
That poor performance, as well as the unorthodox structure of his funds, hasn’t gone unnoticed. Recently, two major fund management houses have removed Woodford’s fund from their investment platforms. Aviva confirmed this week that it has dropped his flagship fund from its unit-linked insurance platform and will be transferring £30m out of it. This follows on from Jupiter’s £300m withdrawal last month. Investors could be losing patience.
In the news again
Well, Woodford has made news headlines again this week. And this time, it’s not about his performance. Instead, it’s in relation to a key trade the portfolio manager has recently made. He has been buying UK bank stocks.
This isn’t entirely new news. In May, it was widely reported that he added Lloyds Banking Group to his portfolio. At the time, Woodford Investment Management stated: “We view Lloyds as a well-managed bank with a conservative approach to its balance sheet. Its valuation looks very attractive in our view, and it has the ability to pay a very healthy and growing level of dividend.”
Woodford buys Barclays and RBS
However, in the last week, it has come to light that he has reinforced his conviction about the UK banking sector with purchases of both Barclays and Royal Bank of Scotland.
While he hasn’t added either bank to his Equity Income or Income Focus funds yet, Woodford revealed at a conference last week that he invested in RBS earlier this year in the £3.2bn mandate he runs for wealth manager St James’s Place and the £280m fund he runs for Openwork. He said he had also started to buy shares in Barclays.
His investment thesis is that the UK banks are now in much better shape than in recent years, and that they have the potential to provide attractive returns to shareholders going forward. He said “their balance sheets are finally repaired,” and his view is “they look far too cheap and Lloyds is one of the most attractive plays in the UK large-cap space.”
Will they boost his performance?
Time will tell whether the purchase of Lloyds, Barclays and RBS will boost Woodford’s performance. However, it’s worth noting that he has made several big calls over his career that have turned out to be very profitable moves. He avoided tech stocks during the dotcom bubble and also avoided the banking sector in the lead up to the Global Financial Crisis. Could his recent purchase of UK bank stocks, at a time when sentiment is low, be his most profitable call of all?