Woodford Turns Bullish on Lloyds as He Cuts Ties With Glaxo

Updated on
  • Money manager says investors are too pessimistic after Brexit
  • Frustration forces Woodford to sell Glaxo after 15 years

Neil Woodford has turned bullish on the U.K. economy and bought a stake in Lloyds Banking Group Plc as the money manager pivots his fund toward domestic-focused companies. To fund the buying, he sold his entire stake in GlaxoSmithKline Plc.

Woodford, who hasn’t owned a traditional bank stock since 2014, starting buying Lloyds in mid-April and it’s now the 11th biggest holding in his 10 billion-pound ($13-billion) flagship equity income fund, making up 2.1 percent, according to the website. He’s also started buying home builders and construction-related companies at the expense of Glaxo, which he had owned for more than 15 years.

“Investors have become far too pessimistic about the U.K. economy,” since Brexit, the fund manager said on his firm’s website. One “very big significant factor which I’ve been waiting for for some time is that the credit environment has begun to normalize. The banks are now broadly repaired in the U.K. They will continue to rebuild capital.”

Woodford hasn’t held a traditional bank stock since selling HSBC Holdings Plc because of the “unquantifiable risk” associated with regulatory fines. By avoiding British lenders, Woodford last year missed out on the biggest rally in the industry since 2012.

The return to the sector by the former head of U.K. equities at Invesco Perpetual underscores the progress Lloyds has made since Chief Executive Officer Antonio Horta-Osorio took over in 2011. He’s returned the London-based bank to annual profit and resumed dividend payments, paving the way for the government to reduce its stake and sell out entirely within the coming days.

Even so, Woodford’s largest holdings as of the end of April remain in health care and tobacco stocks -- industries traditionally considered resilient in a downturn. That’s even after he trimmed his holdings in British American Tobacco Plc.

The fund manager had owned a stake of about 1.2 percent in Glaxo, according to data compiled by Bloomberg, but sold his entire stake out of frustration with management of the drugmaker. In a separate blog called “Glaxit,” Woodford reiterated that the company should split itself into separate, more specialized business units.

“I have consistently believed that GlaxoSmithKline was capable of delivering growth and realizing shareholder value,” he wrote. “Neither has been forthcoming to the extent that I had hoped and expected. Put simply, investing in Glaxo has been a frustrating experience, with three out of the four business units perennial underperformers.”

Woodford Investment Management, which now oversees more than 17 billion pounds in assets, has also acquired stakes in brick maker Forterra Plc, Barratt Developments Plc, Taylor Wimpey Plc, Topps Tiles Plc, Eurocell Plc. and British Land Co., among others.

— With assistance by Richard Partington, and Nishant Kumar

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