Woodford runs the £9.9 billion CF Woodford Equity Income fund, which is amongst the absolute top performers in the IA UK Equity Income sector over the past three years.
The veteran fund manager suffered a torrid 2016 as the market switched towards stocks that do better when inflation rises.
Woodford is presently rather optimistic on the outlook for the UK economy, but doesn’t expect inflation to rise by as much as the market is presently predicting.
He commented that over the past month there have been signs that the so-called ‘reflation’ trade has run its course, with bond yields falling.
Woodford commented, ‘February provided a more positive environment for the fund than we have seen in recent months. Although equity markets continue to trade near all-times highs, the shine appears to be coming off the ‘reflation trade’ as excitement over the outlook for growth in China and the US begins to give way to a more sober assessment of the global economic environment.
The change in market sentiment was particularly evident in the bond market, where yields declined noticeably as the month progressed. Meanwhile, within the equity market, leadership shifted from the resources sectors to more dependable areas such as healthcare and consumer goods.’
He added that a number of the individual stocks that had been beneficiaries of this rally, including BP, HSBC and Shell delivered results that were actually below market expectations.
The veteran investor contrasted that with the results of one of his longer-term holdings, Purplebricks, an online estate agency of which he commented, ‘. The company continues to attract an increasing number of customers in the UK and, with its launch in Australia progressing well, Purplebrick’s disruptive business model is beginning to demonstrate its international viability. Towards the end of the month, the company successfully raised further capital to enable it to expand its footprint into the US market, prompting a further significant positive reaction in its share price, which increased by more than 50 per cent during the month.’
The IPO in which he took part is Arix Bioscience. He commented that he had been an investor in the company for a while before it came to market, but added to the position at IPO stage. Woodford commented that the company is, ‘an evergreen investor in early-stage businesses with a focus on life sciences.’
He has also bought more shares in Mercia Technologies. He commented, ‘ the Midlands-based technology commercialisation business. This additional funding provides the company with further financial firepower to develop its exciting portfolio of companies across a range of high growth industries.’
Woodford added, ‘we added to several holdings in February, including Homeserve, Drax and Idex.’
Of the wider outlook for equity markets he commented, ‘lthough it is encouraging to have seen a more rational market environment prevailing in recent weeks, it remains too early to sound the death knell on the reflation trade. The prospect of renewed excitement about a sustained improvement in the economic growth trajectories of some of the world’s key economies cannot be completely discounted in the near-term. However, the prospect of such an outcome actually materialising is even more remote. We have witnessed several iterations of the reflation trade over the course of the last eight years but, ultimately, they have all fizzled out when the hoped-for sustained and dramatic improvement in economic fundamentals has failed to arrive. We strongly believe that the same will happen this time and indeed, that fizzling process may have already started.’
Since launch in 2014, the Woodford Equity Income fund has returned 34 per cent, compared to 21 per cent for the average fund in the IA UK Equity Income sector in the same time period.