LONDON -- It's always useful to see which shares the experts are buying, especially in times as uncertain as these.
Neil Woodford is as expert as they come. Through his Invesco Perpetual Income and High Income Funds, he looks after an enormous 20 billion pounds of client money. His High Income fund has generated a superb 347% return during the last 15 years -- more than eight times the return of the wider market.
So, what has Mr. Woodford been buying during this year's bout of eurozone worries? Well, the latest half-year report for his 11 billion pound High Income Fund has just been published, and the document reveals the companies into which he's been channeling large amounts of cash.
Here's what caught my eye.
Mr. Woodford established a new position in medical-devices group Smith & Nephew (LSE: SN.L ) in the second half of 2011, and has pumped even more money into the shares this year -- 130 million pounds no less, which is his biggest single investment of the period.
My calculations say that Mr. Woodford paid an average price of 622 pence a share. The shares currently trade at 666 pence, so he's already made a devilishly good return on an investment that now represents 1.8% of his fund.
Smith & Nephew isn't a high yielder -- currently sub-2% -- but it is a fast dividend grower, and has also recently announced a new dividend policy, which involves a step-change increase in the level of the dividend payout. Happy days for our equity income maestro!
Health care continues to be Mr. Woodford's biggest sector bet -- it represents more than a third of the portfolio -- and big pharmaceutical groups are among his most prominent holdings.
Mr. Woodford has been a net buyer of GlaxoSmithKline (LSE: GSK.L ) during the period and, more heavily, a buyer of the generally unloved 6%-yielding AstraZeneca (LSE: AZN.L ) . He's increased his number of Astra shares by 8%, investing 73 million pounds at what I calculate to be an average buy price of 2,863 pence a share. Astra and Glaxo remain the top two holdings in the fund, both at more than 8%.
Elsewhere in the sector, Mr. Woodford has more than doubled the size of his holding in French pharma giant Sanofi, investing 108 million pounds, which increases the weighting of the specialist in diabetes and oncology products to 1.6% of the fund. At the same time, he's sold an almost matching value of shares in Swiss drugs colossus Roche, though Roche remains a significant holding at 3.9% of the fund.
Outsourcing has been another sector favored recently by Mr. Woodford, with Capita (LSE: CPI.L ) and Serco (LSE: SRP.L ) both seeing sustained investment over the past 18 months.
Mr. Woodford established a small position in Serco in the first half of 2011, added to it in the second half, and has continued buying this year. His latest purchases amount to 29 million pounds, and my sums say he paid an average price of 528 pence a share. The shares are now trading at 570 pence.
Fellow outsourcer Capita -- another of Mr. Woodford's buys last year -- has been bulked up with a further 55 million pound investment this year. I calculate that Mr. Woodford paid an average of 662 pence a share for this latest tranche. The shares are now trading at 727 pence.
Capita and Serco have displayed impressive annual double-digit earnings growth through the last five tough years, and both firms are set to double their dividends on their pre-credit-crunch levels in the year ahead. Like Smith & Nephew, these are fast dividend growers rather than high yielders. Both offer yields below the market average: Capita 3.3% and Serco 1.6%.
Not all of Mr. Woodford's latest buys have seen early share price increases. He spent 35 million pounds on a new holding in security group G4S at an average price I reckon to be 277 pence. This was just before G4S's Olympics debacle that sent the shares heading south with a vengeance. Having hit a low of 237 pence in July, they've bounced back somewhat and are now trading at 253 pence.
Secret of success
Mr. Woodford may not get every share call right -- that's impossible, even for him -- but what he has is a philosophy and strategy that have enabled him to build an extraordinary long-term performance record.
If you're interested in learning more about Mr. Woodford's enormously successful approach -- and about other dividend-paying blue chips he currently favors -- grab yourself the exclusive Motley Fool report, "8 Shares Held By Britain's Super Investor." The report is full of valuable investing insights and is free to download right now, simply by clicking here.
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