Speaking at a dinner hosted by Chelsea Investment Intelligence, head of investment at Woodford Investment Management, said he had begun investing in the bank in the middle of last year and has since upped his stake to 2% of his St. James Place segregated mandate.
Asked the reason behind the change of heart, Woodford said he didn’t have a “religious aversion to banks”, but it was the first one that he thought was undervalued.
He said: “HSBC is a systemically important bank and, while it is exposed to the same pressures and headwinds that are keeping me out of the other banks, it is further down the path of recovery than the others.”
Adding: “It is cheap relative to the others and, I believe it is in a position to grow its capital base and reduce its leverage, while at the same time continuing to pay a dividend.”
It is a big, ugly ship to turn around, he said, but CEO Stuart Gulliver “gets it”.
But, while Woodford said Gulliver is doing the right things now, “that does not mean that the environment for banks will not remain very difficult for a while still.”
At a broader level
Woodford also said he continues to see a lot of value in both pharmaceuticals and tobacco, but says things are going to be more challenging going forward.
“Quantitative easing was designed to inflate asset prices. It has done that very successfully and it has now outgrown its usefulness,” he said.
Adding: “The situation now is one where valuations have run significantly ahead of earnings. That valuation gap will close, either through earnings growth or though multiples coming down.”
