Woodford’s new portfolio aims to avoid sectors and stocks he believes are ‘vulnerable to a faltering global economy’ but also incorporates a number of early-stage businesses based on university research.
As earlier reported, the top 10 holdings reflect his bearish outlook strongest with the heavy presence of pharmaceutical and tobacco stocks. Woodford believes these two sectors will be resilient in a weakening economic environment and have companies with strong balance sheets and attractive valuations.
The themes are reflected across the portfolio however not only in the top 10 holdings, Woodford said.
By no means all of Woodford’s picks are well-known names, and among the 61 stocks there are a number of early-stage businesses linked to scientific research carried out at UK universities.
“The UK has some of the best universities in the world, developing some of the best intellectual property,” Woodford said. “Unfortunately, as an economy we have not had a good track record of converting these great ideas into long-term commercial success, there are many reasons for this but the principle one is a distinct lack of access to appropriate long-term patient capital,” he noted.
Woodford added that this combination of ‘great innovation’ and a lack of capital has created some very exciting investment opportunities, which he aims to take advantage of through early-stage investments. He did note however that these investments will only be a small part of the fund.
Another notable aspect of the portfolio is the significant presence of financials, with HSBC being the biggest. “I continue to believe that the process of post-crisis balance sheet repair still has a long way to go, particularly for the UK-focused high street banks”
Woodford said. “HSBC is a very different beast however; it is a conservatively-managed, well-capitalised business with an attractive spread of international assets,” he added.
“I have questioned its valuation at times both pre and post financial crisis but over the last couple of years it has returned to a more attractive valuation level, regularly trading at around or even below its book value,” Woodford continued.
“In yield terms too it has started to look more interesting – a starting yield of over 5% with modest but sustainable long-term growth prospects looks very attractive for what is fundamentally a very high quality business,” he said.
The fund was launched on 2 June and raised £1.6bn during the offer period, which closed on 19 June.
