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Woodford: I've finally found a bank to back

Neil Woodford explains why HSBC convinced him to break his decade-long aversion to the banking sector.

 
Woodford: I've finally found a bank to back

Star fund manager Neil Woodford has broken the habit of a decade and invested in the banking sector with a stake in HSBC (HSBA).

Woodford, who has set up his own firm and a new fund after calling time on a 25-year career at Invesco Perpetual, is famed for his aversion to banks. His refusal to hold them in the run-up to the financial crisis is one of the reasons behind the stellar record of his former funds, Invesco Perpetual Income and High Income .

But Woodford has now given his most detailed account of why he quietly invested in a bank for the first time in 10 years last summer. The manager bought into HSBC through his former Invesco funds and has been adding to his stake in the mandate he continues to run for financial sales force St James’s Place.

‘I don’t have a religious aversion to banks and HSBC is undervalued,’ he said. ‘While HSBC is exposed to many of the pressures that keep me out of banks, and has done some stupid things and will probably continue to get fined, the direction of travel at the bank is clear. It is a bank that can build a capital base and reduce leverage and one I believe will pay and sustain a dividend.’

Woodford also believes the bank has learnt from its mistakes and was full of praise for its management.

‘Stuart Gulliver [HSBC chief executive] gets it and is doing a good job, it’s an ugly shift but he doing the right things.

‘The environment for banks is going to remain difficult but HSBC is much further down the path of repair, while other banks… still haven’t cleansed their balance sheets from bad loans.’

The fact that Woodford’s HSBC investment has only recently emerged will surprise some. But Woodford has pledged to be ‘more open and accessible’ now he has set up his own firm. ‘I need to balance this with managing large amounts of money but you will know much more about what I am doing. It won’t be shrouded in mystery any more,’ he said.

'Unbelievably attractive' technology firms

Woodford’s shunning of technology stocks as the dotcom bubble burst at the turn of the millennium was another contributor to his success, and the manager said he had struggled to understand valuations in the sector throughout his career. But he described himself as ‘neither a tech bull or bear’, adding that a number of tech companies were ‘unbelievably attractive, and not just in the biotech market’.

He pointed to two recent purchases of Norwegian tech firms in his St James’s Place fund , including one which specialises in fingerprint technology. He is also a well-publicised backer of bid target AstraZeneca (AZN). ‘Astra oozes technology, but it doesn’t have someone wearing jeans and a t-shirt representing it,’ he said.

'No brainer' to launch own fund

Woodford said he had always planned to see out his career at Invesco, but once he began considering setting up on his own, it became a ‘no brainer’.

‘On an idle Tuesday afternoon I’d talk to Craig [Newman – Woodford’s chief executive] and ask “If we are setting up an investment firm from scratch would it look like Invesco Perpetual?” The answer was “no”.

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3 comments so far. Why not have your say?

Jonathan

May 16, 2014 at 19:15

This man has such a reputation that him just saying he's buying HSBC will have a significant effect on its share price.

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Sinic

May 17, 2014 at 15:03

My wife and I have over £100,000 invested in Invesco Perpetual Income, High Income and Edinburgh Investment Trust (it started out as much less!!) and I have every intention of transferring at least 50% to Woodford in June. The man is consistantly competent and arguably the most successful equity income manager of his generation.

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john_r

May 22, 2014 at 16:21

I notice Woodford Investment Managers bought around 85 million shares in Breedon Aggregates on May 1st - 2 days after Invesco sold 85 million shares. I suspect there may be quite a bit of this horse trading going on as Invesco adjusts to a smaller capital value and Woodford picks up the slack.

Since May 1st Breedon has dropped 16% so I think this round goes to Invesco.

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