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SLI's Moore: owning big name income stalwarts is a risk
Markets
by Sarah Miloudi on Mar 21, 2013 at 14:46
Income stalwarts AstraZeneca, Vodafone and GlaxoSmithKline are companies that have seen better days despite continuing to be held by investors, warns Standard Life Investments’ Thomas Moore.
He is currently avoiding all three mega caps in the belief that owning them could constitute a big portfolio risk.
The Citywire A-rated manager, who runs the SLI UK Equity Income Unconstrained fund and the closed-end Equity Income Trust, argued pharmaceutical favourite AstraZeneca is already showing signs of weakness, while Vodafone’s problems were demonstrated when high profile investor Neil Woodford sold out in February.
‘Astra and Glaxo really are in decline,’ Moore said, speaking at the inaugural Citywire Wealth Manager Conference & Awards 2013, held in London.
‘Astra has already shelved its share buybacks and its sales are down, so that dividend is going to come under pressure,’ he added.
While the two firms have spoken publicly about their struggles, with GlaxoSmithKline bemoaning the ‘challenging’ European market and AstraZeneca revealing a 16% sales slump over the three months to January, the two firms continue to hold prominence in UK income portfolios.
Owners of GlaxoSmithKline include Invesco Perpetual’s Woodford (8.2%), Threadneedle’s Leigh Harrison (5.1%) and Henderson’s James Henderson (2.5%), while Cazenove’s Matthew Hudson (3.3%) joins Woodford (8.9%) and Harrison (4.8%) as an owner of AstraZeneca.
There is undoubtedly a high level of concentration in other UK equity income bets, with the likes of British American Tobacco and Imperial Tobacco also very widely held.
Moore said in many cases investors may be paying for quality that no longer exists, particularly with AstraZeneca, which acknowledged its decline in sales is only partly symptomatic of difficult market conditions and more likely down to the fact drugs accounting for 40% of its revenues will lose patent protection in 2014.
Conversely, Moore (pictured), who over the last three years has returned 51% versus 38.6% by his average UK equity income peer, said that not owning under-pressure bank Barclays is also a threat.
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