Master investor Neil Woodford famously got out of banks before the financial storm of 2008/9 wreaked havoc on the sector. Such big calls helped Woodford deliver stunning returns for investors over a quarter of a century of managing funds for Invesco Perpetual.
Having left Invesco, the City wizard has been on a two-week roadshow ahead of the launch of his new CF Woodford Equity Income Fund on 2 June. The biggest revelation to come out of the tour is that Woodford has invested in a bank for the first time in a decade. He started buying into Footsie giant HSBC last summer — not for Invesco’s flagship funds, but for a lower-profile portfolio he still runs for wealth manager St. James’s Place.
Another low-profile Woodford buy at around the same time as HSBC was Legal & General (LSE: LGEN) (NASDAQOTH:LGGNY). As with the bank, this was the first time Woodford had invested in a FTSE 100 insurer in years.
Legal & General
I alerted Motley Fool readers to Woodford’s move into L&G at the time, and suggested he was likely to build on what was a relatively small initial stake.
Despite the current share price of 230p being significantly higher than the average 166p during the period of his initial purchases, Woodford remains keen on the company.
Annuity providers, such as L&G, took something of a hit when George Osborne announced his Budget in March. The Chancellor said no one will have to buy an annuity in future, and savers will be free to do whatever they like with their retirement savings.
The shares of L&G and others dived on the day, and financial pundits rushed to write about how Osborne’s liberalisation of pension regulations was bad news for the companies.
Contrarian Woodford has taken the view that the changes are not so much a hindrance as an opportunity for L&G. He recently told What Investment:
“The fact is most people retiring today have an average life expectancy of 20-25 years so why is it not appropriate to have an equity in their investment strategy with this horizon?”
His thesis is that:
“L&G will look less like a traditional life insurance company and more like a fund management business going forward. It might mean lower margins but what that might also mean is less capital intensity as well”.
With L&G trading on an average forward P/E of 14, and an above-average yield of 4.7% — with strong earnings and dividend growth forecast — I think there’s every reason to believe that Woodford will be happy to shop for the shares when he launches his new fund next month.
