Woodford Sells Pharma Stock to Buy Financials

NEWS YOU CAN USE: Buxton warns of a Brexit recession, Woodford capitalises on the post-vote slump and investment trusts reveal a bumper year for assets under management

Emma Simon 28 July, 2016 | 1:26PM
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Compared to recent months July has been a period of relative calm in financial markets. With a new Prime Minister at the helm, a new Chancellor and a new pensions minister it remains to be seen how fiscal and economic policies will change and what effect these could have on our savings and investments.

But for the time being it has been very much a case of ‘business as usual’. Surprisingly, given the turbulence that followed the Brexit vote last month, stock markets recovered lost ground and the FTSE 100 moved into bull territory.

There was even a modest increase in the value of sterling after the Bank of England decided to keep rates on hold, although the value of the pound against both the dollar and euro is still significantly below pre-Brexit levels.

However, it’s not all been good news. A number of prominent City voices have warned about the risk of economic slowdown and recession this month. Commercial property funds have also continued to struggle. At the end of last month Standard Life, Henderson, Aberdeen Asset Management moved to restrict withdrawals on these funds. Such restrictions are now in place across the sector.

Buxton Warns of ‘Brexit Recession’

Despite the recovery in the FTSE 100, the chief executive of Old Mutual Global Investors, Richard Buxton warned the UK faced a “horrible Brexit fallout” with severe consequences for the City.

Buxton, who also manages the UK Alpha Fund for OMGI, said he expected a “mild recession’ in the near future.

In an interview with The Guardian he dismissed claims of “doom-mongering” in the run up to the vote, adding: “Mark Carney's speech [in which he warned of the dangers of Brexit] was absolutely spot on. This is just really bad news. It is extraordinary how we have ended up where we are.”

However, he said he was optimistic about the outlook for OMGI, despite seeing outflows from some funds following the vote.

Woodford Capitalises On Volatility

Not all fund managers are as pessimistic: Neil Woodford, manager of the eponymous Woodford Equity Income fund, has used the recent stock market volatility to increase holdings in UK-based businesses whose shares prices were trading at “highly distressed levels”.

In an update to investors, Woodford Investment Management said the company has sought to take advantage of the “hysterical and valuation-insensitive behaviour” that followed the EU Referendum vote.

Two of the fund’s top 10 holdings, Legal & General (LGEN) and Provident Financial (PFG), saw share price falls of 30% and 25% respectively in the two days after the Brexit result.

The update said: “We have spoken to the management of [both companies] and have concluded that they remain well-placed to deliver very attractive rates of sustainable dividend growth in the years ahead.

“As such we have been keen to take advantage of the ill-informed investor behaviour that is a common characteristic of financial markets in a state of shock.”

Other purchases included engineering support services company Babcock (BAB); outsourcing company Capita (CPI) and NewRiver Retail (NRR), a property investment trust. In order to increase holdings in these companies Woodford Equity Income has sold shares in tobacco and pharmaceutical companies.

Brexit Dividend Boost

Despite the market turbulence investors can look forward to bumper dividends in the second half of this year, according to the latest forecast from Capita. The outsourcing company has uprated is headline dividend forecast for 2016 by 3.8% - to £82.5 billion.

It said the falling value of sterling should boost the profitability of large cap companies which have a more global remit. In addition, it expected there to be a ‘windfall’ from special dividends.

However, its forecast warned that recessionary pressures could hit profits and dividends paid by UK-focused mid-caps.

Upsurge in SIPP Complaints

The Financial Ombudsman Service has seen almost a 10% increase in the number of complaints about SIPP providers the first quarter of this financial year.

Although the overall number of complaints remains relatively low compared to complaints about payment protection insurance or payday loans, but the uphold rate is far higher. In fact, the Ombudsman was more likely to rule in the consumers favour on SIPP complaints than on any other class of business.

Figures published this month show that the FOS upheld 66% of SIPP cases. It total it received 476 SIPP enquiries in this three month period - a 9.4% increase on the first quarter of this year.

Over the same period it received almost 1000 enquiries about personal pension over this period, although only 30% of enquiries were upheld.

These findings come as the Financial Services Compensation Scheme revealed that payouts to consumer for poor life and pensions advice had more than doubled in the space of a year. This was largely due to an increase in high risk SIPP investment claims.

In the first quarter of 2016 the FSCS paid out £84 million in compensation for the life and pensions advice sector - compared to £35m over the whole of last year.

While complaints about pensions have soared since the introduction of the pension freedom rules they still dwarf the 50,000 plus enquiries the FOS received about mis-sold payment protection insurance over the same three-month period.

Bumper Year for Investment Trusts

Despite market volatility the investment trust industry enjoyed a stand-out year, with assets under management reaching a record high of £141 billion by the end of June.

Figures released by the Association of Investment Companies showed that the amount of cash in closed-end funds has doubled in 10 years. This year has been a bumper one, with a £9 billion increase since January this year and £5 billion increase since May alone.

The global sector is currently the largest group with assets under management of £22 billion. This is followed by the Property Sector, which has assets under management of £13 billion. But while the Global Sector has declined slightly over the past 10 years, the property sector has more than doubled over this same period.

The biggest growth has been in Infrastructure investment companies, part of the specialist sector. Today these have assets of £8 billion, making it the fifth largest sector. A decade ago this slice of the market had just £246 million under management.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk