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Woodford drops Vodafone from £12bn High Income fund

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Woodford drops Vodafone from £12bn High Income fund

Star fund manager Neil Woodford has sold his long-standing Vodafone stake in his £12 billion Invesco Perpetual High Income fund.

Vodafone (VOD.L) had been one of Woodford’s top holdings in the fund, accounting for 4.9% at the end of 2011. But he has now sold out of the stock due to reduce forecasts for revenue growth and concerns about its ability to maintain margins, according to The Telegraph.

Invesco product director Mitchell Fraser-Jones told the paper: ‘The fund has now completed the sale of its holding in Vodafone.

‘The company has reduced its forecasts for revenue growth on the back of ongoing weakness in its core southern European markets and the cash flow cover of the dividend has fallen to what we view as uncomfortably low levels,’ he added.

‘The company announced a share buy-back rather than the hoped for special dividend with its dividend from Verizon Wireless, while we also have reservations about the company’s ability to maintain its margin on data revenues.’

Vodafone yesterday issued results reporting a 2.6% decline in group service revenues for the last three months of 2012, as it was hit hard by continued weakness in Europe. But its shares closed up 2.9p, or 1.7%, yesterday at 173.3p, with analysts Charles Stanley claiming the company remained a good buy. Nomura analyst James Britton, however, expressed concern about the 'lack of certainty' for the dividend.

Woodford's move is significant because Vodafone was the UK's biggest dividend payer last year, shelling out a total of £7.4 billion, beating oil giant Shell which paid £7.2 billion, according to the Capita Registrars UK Dividend Monitor published this week. Despite its largesse with dividends, helped by a special £2.2 billion payment funded by its share in a mega-dividend from Verizon Wireless in the US, fund managers have been concerned about the prospects for the dividend. Last October Vodafone dropped out of Citywire Top Stocks as sentiment soured. 

Woodford’s ability to get the big calls right on the fund, such as selling out of banks before the credit crisis, and avoiding the dotcom bubble, means the fund has enjoyed a stellar long-term performance record. The fund marked its 25th anniversary this week, and would have returned 1,906% to investors who reinvested dividends since its launch.

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