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Woodford banks on builders' yield with new fund

Neil Woodford is drawn to high yields on offer by house builders, as he unveils all the stocks in his new Income Focus fund.

 
Woodford banks on builders' yield with new fund

Neil Woodford has taken a big position in UK house builders in his new Income Focus fund, as the manager is drawn to the high yields available in the sector.

Woodford has revealed every single stock in his new fund, which features FTSE 100 builders Taylor Wimpey (TW) and Barratt Developments (BDEV) in the top 10 holdings.

The manager also bought the stocks for his flagship Equity Income fund last month, but they make up a much bigger proportion of the Income Focus fund, launched in March, at a combined 5% of the portfolio.

'Mid cap' builders Bovis (BVS) and Crest Nicholson (CRST) are meanwhile new buys for Woodford, making up just under 2.4% of the portfolio.

While house builders have recovered strongly after being hit hard by the Brexit vote, the high special dividends they have been paying amid the buoyant property market of the last few years mean they still boast high trailing yields.

Taylor Wimpey trades on a trailing yield of 6.1%, Barratt Developments is on 5%, Bovis is on 4.9% and Crest Nicholson is on 4.5%.

Woodford (pictured) will be hoping they will be able to sustain those levels of payments, as the manager aims to pay out a dividend equating to 5% of the launch price next year.

While their income is an obvious attraction, they are also highly geared to the performance of the UK economy, which Woodford has argued is better placed than many believe.

His confidence in the domestic economy, and his belief that cyclical companies exposed to it have been oversold by the Brexit vote, sparked an overhaul of his Equity Income fund last month and is also a theme of his new portfolio.

While his new fund has greater scope to invest overseas, there is a strong UK domestic slant to Income Focus. 'In the run-up to the launch of the Income Focus fund I had said that I believed there was an attractive domestic opportunity, in part because people were too downbeat about the UK economy,' Woodford said.

'The new portfolio is a manifestation of this view but in a more income-focused way.'

It is more concentrated than the Equity Income fund, housing 50 stocks as opposed to 131, with the long tail of early-stage and unquoted companies that feature in his flagship fund absent.

While there is substantial crossover in the stocks held, 15 of the companies in the Income Focus fund are new positions. The portfolio features a greater exposure to property, sharing positions in real estate investment trusts (REITs) New River (NRRT) and Londonmetric (LMPL), Sirius Real Estate (SRET) and Raven Russia (RUS), alongside new holdings in German group Leg Immobilien (LEGn.DE) and Regional REIT (RGLR).

Insurers also play a bigger role. Equity Income holding Legal & General (LGEN) is the new fund's second biggest position, while Aviva (AV), briefly held by the flagship fund before being sold on valuation grounds also features. Closed-book insurer Phoenix (PHNX) is a new position.

Woodford has also returned to areas he is familiar with. He sold SSE (SSE) from his Equity Income fund in 2015 on fears the energy provider would struggle to grow its earnings, but has found the 6.1% yield too high to ignore for his new fund.

That's supplemented with new holdings in 3.9% yielding Pennon (PNN) and 4.1% yielding National Grid (NG) bolstering exposure to utilities which have been lacking from the Equity Income fund, after Woodford followed the SSE sale by dumping his shares in British Gas owner Centrica.

Woodford's new buy Lloyds (LLOY) meanwhile occupies a bigger billing in his new fund as the sixth largest holding. Pharmaceuticals, long a favourite Woodford sector, play a role in the new fund, with AstraZeneca (AZN) the top holding, as it is in his flagship portfolio. But there's also a position in the form of US group Gilead (GLD.O).

10 comments so far. Why not have your say?

keith21250

May 17, 2017 at 16:54

Clearly he does not regard Brexit as a train smash waiting to happen and if he is right I have got it badly wrong!

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Mark Stringer

May 17, 2017 at 17:09

keith21250, if you could provide one utterly researched piece of evidence of a train crash event, any reliable statistics (although Mark twain's lies, damned lies and statistics makes that a problem) a rock solid guaranteed THIS WILL HAPPEN because and the consequences absolutely will be rather than some bilge regurgitated by a media page filler I'd really like to see it. No, seriously I would.I'm all for knowledge that helps me especially as I have made more money since 23rd June 2016 than in the previous 5 years combined and more since January this year. My problem is not being able to access more money to invest and I'm afraid of missing the boat.

I genuinely believe that this for me is an earlier than expected retirement opportunity.

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Roger Woolnough

May 17, 2017 at 17:09

I can't stop investing on the basis of a train smash that is unlikely to happen in the foreseeable future. Keep the faith

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SDRL

May 17, 2017 at 18:20

I feel the Britexit will be good for the UK. My thought is that Woodford's timing is wrong in buying the banks when they have had such a strong run. Further, I am not so sure with so many uncertainties in the markets that interest rates will dramatically increase from here which banks depend upon. I would also add that it may have been a wrong time to sell GSK by Woodford because of what he said about GSK and how an aging population, pipeline so forth benefit Glaxo a month ago.

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DIY

May 17, 2017 at 18:29

Surprised that Woodford did not include Berkeley Group (BKG) in his house builder investments. This is a real high quality company yielding 5.9 percent. Yes, the media is full of gloom at the prospects for builders, particularly those with high London-centric operations. But BKG is much more than that. And longer term cannot see Buyers preferring to buy high quality homes in Luton, Watford, or Slough in preference. A BDEV or BVS home is but a pale shadow in comparison. Cheap yes, quality not so good . . . . . .

On the eventual outcome of Brexit in market terms, nobody knows. This is the ultimate Known Unknown. Statistics look only backwards. As the corny (and Karney) adage says - Forecasting is damn difficult, especially about the future. Osborne (with Treasury advice) got it wrong. So we know who is going to get it right?

DIY

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Mark Stringer

May 17, 2017 at 20:53

DIY, 'On the eventual outcome of Brexit in market terms, nobody knows'. Hope keith21250 is reading this as he seems to know something we don't and perhaps we can be helped.

I hope to christ he isn't using the network rail timetable for the 'train smash'.

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Law Man

May 17, 2017 at 22:26

My concern at this fund is that Mr Woodford has to buy high dividend yield shares to reach a dividend pay out of 5% p.a. The Woodford Equity Income Fund pays out 3%. Is it worth holding potentially lower capital growth shares to gain 2% p.a.?

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Stephen Tiley / PensionsManager

May 17, 2017 at 23:32

I have the Vanguard FTSE350 High Yield passive income fund, which is well diversified and cheap, but offers over 4% yield (or did when I bought it). The risk reward ratio seemed good with considerable savings compared with an active manager typical fee. I note Vanguard seem to have shaken up the market with their platform fee of 0.15% and passive funds for around 0.15% too. HL shares fell 8% when they launched it apparently, but other companies offer fixed fees instead of percentages which can be better value of course.

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I predict a riot

May 18, 2017 at 15:23

I have bought a few builders myself. Every government seems hell bent on increasing the population through mass immigration so loads of new houses need to be built. It's a bit of a no brainer.

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CT

May 23, 2017 at 18:59

Quite agree Mark - just imagine being stuck in a lift with Keith !

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  • CF Woodford Equity Income A Sterling Acc
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  • CF Woodford Income Focus A GBP Acc
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  • Taylor Wimpey PLC (TW.L)
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  • Bovis Homes Group PLC (BVS.L)
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  • Crest Nicholson Holdings PLC (CRST.L)
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  • Lloyds Banking Group PLC (LLOY.L)
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  • AstraZeneca PLC (AZN.L)
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  • Sirius Real Estate Ltd (SRET.L)
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  • Raven Russia Ltd (RUS.L)
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  • Neil Woodford
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