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Tesco: Woodford vs. Buffett, Round 1

LONDON -- It was just over a year ago that Motley Fool article writers received manna from heaven as Neil Woodford sold a large portion of his stake in Tesco  (LSE: TSCO  )  to Warren Buffett. The two legendary investors took opposing stances on the future of the U.K.'s largest retailer following the company's first profit warning in a donkey's age, providing investors with much to contemplate.

Both Woodford and Buffett are long-term investors so a year hardly registers in their investing minds, but those less legendary investors -- like me -- must be excused for short-term checkups.

Who's ahead?
According to Woodford, he sold a large portion of his Tesco stake following the profit warning and was able to do so because there was a large buyer in the market -- Buffett. This transaction took place on Jan. 12, 2012. A year later, we can see that Buffett seems to have the upper hand.

  Jan. 12, 2012 Jan. 12, 2013 Total Return
Tesco 323.4 353.2 13.8%
FTSE 100 TR Index 3831.61 4304.07 12.3%
Invesco Perpetual Income (Acc) 2011.39 2205.68 9.7%

Note: Tesco's total returns include 14.76 pence in dividends paid during the period.

Buying after Tesco's profit warning provided Buffett with returns 1.5 percentage points above the FTSE 100 and over 4 percentage points ahead of Woodford's Invesco Perpetual Income fund. In the two months since, Woodford's fund has closed the gap a bit but still trails Tesco's returns by 3 percentage points.

Can't win 'em all
Of course, increasing his stake in Tesco on the sell-off hasn't yet helped Buffett's overall return on the investment. According to his latest letter to Berkshire Hathaway shareholders, Buffett's Tesco position is the only one out of 15 over $1 billion that is underwater.

And while Tesco outperformed its domestic benchmark, it trailed the performance of the S&P 500 and contributed to extending Berkshire Hathaway's losing streak against its U.S.-based benchmark. If performance doesn't improve in 2013, Buffett's investment vehicle could see its first five-year losing streak relative to the S&P 500 in 48 years.

Next rounds
Like Tesco's turnaround, which seems to be bearing fruit but is still too young to declare victory, this investing battle will rage on for years to come. In the latest developments, Woodford has upped his stake in Wm Morrison, the No. 4 player in the U.K.'s grocery market, as Tesco launches a price-match program that targets stores' own-brand products for the first time.

With U.K. consumers still under pressure and Tesco's international operations having varying degrees of success, there is much more to come in this clash of investing titans.

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9/23/2016 12:06 PM
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