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”.
‘[So] The opportunity arose to start again and allow me to create something fit for purpose and give me the maximum time to run money. All the pull factors encouraged me to take a gamble and enter this scary new world and I am glad I did it. There’s a need for what we do and I am very focused on my job as a fund manager.’
Invesco Perpetual has seen sharp outflows across Woodford’s old income funds since he handed in his notice last October. Does he feel any remorse?
‘Invesco Perpetual manages lots of money globally and they will get over it. Invesco Perpetual will survive beyond Neil Woodford,’ he said.