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Under the Barnett: Four top ideas from Woodford's successor
by Robert St George on Oct 16, 2013 at 11:51
Neil Woodford’s fondness for tobacco and pharmaceuticals is well known. But what of Mark Barnett, the man stepping into his shoes? Wealth Manager reveals some of his favourite stocks.
The largest holding across Barnett’s funds is BT, despite the group’s turnover having fallen in each of the past five years. But Barnett – in what he has acknowledged is a ‘bold bet’ – has tipped the decline to reverse now BT has spent £2.5 billion, equivalent to its entire pre-tax profit, rolling out its high-speed fibreoptic network.
Barnett expects customers to prove willing to pay more for this speedy internet access, but is assured too by BT’s rigorous cost-cutting programme. He estimates that in the past five years, BT has saved more than over the course of the previous 25 years combined. This has helped the firm more than double profits since 2010, despite the lower revenues, and its dividends have climbed by a third as well.
The greatest contributor to Barnett’s performance over the past year has been Thomas Cook, shares in which have gained almost 800% since last October. Barnett believes you find such opportunities ‘once or twice in your career’.
He initiated the position after Thomas Cook shares plunged by 80% in 2011 amid several profit warnings while the Arab Spring deterred holidaymakers from North Africa. The stock promptly lost another three-quarters of its value when Thomas Cook announced it might miss interest payments on its borrowings.
Undeterred, Barnett probed and discovered that Thomas Cook’s creditor was the Royal Bank of Scotland: he wagered that a government-owned bank wouldn’t allow a well known name to collapse. He duly added to his holding.
He now believes it will start paying a dividend within 24 months.
Barnett has nevertheless taken some profits from Thomas Cook and redeployed them into two relatively unknown small-caps. One is Fusion IP, which works with universities in Sheffield (pictured), Nottingham, Swansea and Cardiff to commercialise their intellectual property.
The other is Imperial Innovations, which does the same with the universities of Cambridge (pictured) and Oxford plus University College London and Imperial College London.
Barnett describes such companies as ‘the last value pool’ in the market, and laments that they have been regarded as ‘a backwater’ for other investors.
More about this:
Look up the funds
Look up the shares
- BT Group PLC (BT.L)
- Thomas Cook Group PLC (TCG.L)
- Fusion IP PLC (FIP.L)
- Imperial Innovations Group PLC (IVO.L)
Look up the investment trusts
- Keystone (Ordinary Share)
- Invesco Perp Select UK Equity (Ordinary Share)
- Perpetual Income & Growth (Ordinary Share)