Woodford funds rally 6% as election finally buoys UK domestics

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13 December 2019

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Neil Woodford’s portfolios have rebounded on the landslide victory for the Conservatives, which comes the same day Woodford Equity Income is renamed with Link’s branding.

It is understood at the time of writing both the “legacy portfolio” of Woodford Equity Income and the Income Focus fund were up about 6% after the election result. However, fund performance data is updated at the end of the day, so fund returns for Friday will not be available until Monday.

WEIF’s authorised corporate director Link updated the market on Friday, saying 80% of the portfolio’s liquid stocks have been sold. The cash has been invested in FTSE 100 index instruments, money market funds, government securities and commercial paper with short maturity date.

But shares in Woodford Patient Capital trust were trading down 0.61% mid-morning.

Meanwhile, the Edinburgh Investment Trust share price was up 2.5% at the time of writing. Its top five weightings are 31.6% in financials, 16.3% in consumer services, 14.7% in industrials, 13.7% in oil and gas, and 10.6% in consumer goods.

Manager Mark Barnett was sacked by the trust’s board on Wednesday after delivering “another weak result for the company” which extended its underperformance to beyond three years. He is to be replaced by Majedie Asset Management CIO James de Uphaugh.

In a statement published on Friday following the election result, Barnett, who also manages the Invesco High Income and Invesco Income funds, said he believes the valuation opportunity remains in companies that derive their income from a UK revenue base.

“It is UK sourced revenues, more than just the valuation of UK domiciled companies, that have suffered the biggest discount in the period of uncertainty. The embedded discount in valuations across global equity markets had already reached such an extreme level that by the end of November 2019, £1 of revenues sourced in the UK was worth less than a third of $1 of revenues sourced in the US.”

AJ Bell head of active portfolios Ryan Hughes said: “Mark Barnett is likely to have had a good day given his positioning while Woodford Income Focus should also have had a boost.

“Those managers with a clear domestic focus should have bounced along with mid and small cap managers. So funds like Jupiter UK Special Situations, Man GLG Undervalued Assets, Franklin UK Mid Cap, Merian UK Smaller Companies all should have performed well today.”

Other trusts gather steam

Other investment trusts were faring better from the bounce. The Montanaro UK Smaller Companies Investment Trust was up 5.3% by mid-morning. The trust’s largest sector weighting is industrials at 39%, followed by consumer at 20% and financials at 18%.

Similarly, the Alastair Mundy-run Temple Bar Investment Trust which counts Royal Dutch Shell and BP, as well as Capita, Lloyds and Barclays among its top 10, was up 5% by midday on Friday.

Seven Investment Management senior portfolio manager Peter Sleep queried whether today could be the day that value made a comeback, but Fairview Investing investment consultant Ben Yearsley said it is “not necessarily start of value comeback more a re-rating of the UK”.

Hughes said the election result does refocus investors on the domestic opportunities in the UK in the short term but “we still have the small task of negotiating a trade deal with the EU”.

“As a result, as 2020 progresses, investors will look carefully at the progress of the trade deal and this could easily change sentiment if the risk of a hard Brexit increases again,” he added.

Meanwhile, the top five funds viewed on the HL mobile app had a more quality growth than value focus. These were Lindsell Train Global Equity, Fundsmith Equity, Lindsell Train UK Equity, HSBC FTSE 250 Index, HL Select Global Growth Shares.

Conservative landslide could revive value investing

The bounce in sterling and UK domestic stocks following the Conservative party’s landslide election victory has led to questions over whether value could be coming back into vogue.

The FTSE 250 surged 5% on Friday after the Conservative party trounced labour to take a 161-seat majority. By mid-morning the index was up 4.3% while the more internationally-exposed FTSE 100 was up a more modest 1.8%.

Domestic stocks, particularly utilities, were aided by the eradication of the Jeremy Corbyn (pictured) threat to nationalise certain sectors such as utilities, as well as a strengthening sterling which hit 1.34 territory versus the US dollar and 1.21 versus the euro.

Sleep said: “The housebuilders, banks, insurance and utility companies are big winners, but these are generally under owned.”

Hargreaves Lansdown said financials, utilities and oil and gas companies were among the top 10 most-viewed shares on its platform by 9am on Friday.

Hargreaves Lansdown head of investment analysis Emma Wall said: “Now that the spectre of nationalisation has been banished Centrica, SSE and United Utilities have bounced as much as 10% – rewarding those brave shareholders who backed them through the Corbyn manifesto threat.”

Top 10 shares viewed on HL platform by 9am