Neil Woodford’s First Buys For His New Fund

AstraZenecaThe initial offer period for Neil Woodford’s new CF Woodford Equity Income Fund closed at noon last Thursday (19 June).

The renowned fund manager told us during the morning:

“I can’t pre-announce my exact investment intentions but I do have a clear idea of what the starting portfolio … will look like. … I can start to build the portfolio this afternoon. I intend to proceed in a careful and considered manner, with a strong, disciplined focus on valuation — I won’t buy any share for the portfolio unless I view its valuation as attractive”.

Mitchell Fraser-Jones, Woodford’s Head of Investment Communications, sounded excited a few hours later, saying of his boss: “He’s rather busy this afternoon!”

RM2 International

One of Woodford’s Thursday afternoon buys was revealed on Friday when AIM-listed pallets company RM2 International (LSE: RM2) disclosed that Woodford Investment Management had acquired 24,000,000 shares (7.5% of the company).

RM2’s non-executive directors are far more glamorous than its business, because they include ex-Diageo chief executive Paul Walsh and former Marks & Spencer boss Sir Stuart Rose. Not bad for a company whose current share price of 52p gives a market capitalisation of a mere £167m.

ReNeuron Group and e-Therapeutics

Drug-discovery firm e-Therapeutics (LSE: ETX) and stem-cell business ReNeuron (LSE: RENE), both AIM companies, also disclosed that Woodford had bought shares on Thursday afternoon.

Woodford Investment Management now owns 17.7% of e-Therapeutics, which has a market capitalisation of £73m at a current share price of 27.5p, and 14.9% of ReNeuron, which has a market capitalisation of £54m at a current share price of 3p.

The number of shares Woodford bought in each company was matched by an identical sale on the same day by his former employer Invesco Perpetual.

AstraZeneca and BAE Systems

Invesco Perpetual also made hefty sales of shares in AstraZeneca (LSE: AZN) and BAE Systems (LSE: BA) last week. Now, because these are companies with much bigger market capitalisations, Woodford — if he is currently buying stakes in them — may not reach a level that is disclosable to the market. It would depend on what weighting he gave them in his fund and how big the fund is. Woodford tells us: “We don’t believe it would be sensible to announce the total amount raised for the fund immediately for reasons of market sensitivity …”

However, Woodford is on record as saying that last month’s £50 a share offer by Pfizer for AstraZeneca was “very distant” from being a full valuation; Astra’s shares now trade at under £44. So, I reckon the master investor would be happy to buy.

BAE Systems is another long-time Woodford favourite, and the shares are currently trading at an undemanding 11 times forecast earnings with a well-above-market-average dividend yield of 4.8%. Again, this looks to me like a company Woodford will be interested in.

Finally, a word of warning. With the bull market, which has floated most boats, now mature at five years old, Woodford reckons picking winners is becoming more challenging.

It's a view shared by the Motley Fool's crack team of analysts. Indeed, our analysts believe only a handful of companies will make really big gains over the next 12 months.

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G A Chester does not own any shares mentioned in this article.