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 more than 22 billion pounds of client money. His High Income Fund has generated a superb 342% return over the last 15 years -- outperforming the FTSE All-Share index by more than 200%.
So, what has Woodford been buying and selling? Well, the latest annual report for his 12.5 billion pound High Income Fund has just been published, and the document reveals which stocks he's been pumping cash into and which stocks he's been cutting back on or disposing of completely.
Security guards wanted
Woodford's biggest company purchase from within the FTSE 100 during the period was global security group G4S (GFS). The maestro's timing wasn't great on this one as he began buying before the company's Olympic Games debacle.
However, he has since averaged down with a vengeance, bringing his total investment to over 200 million pounds. According to my calculations, his average buy price was 260 pence.
The shares have recovered nicely and are currently trading at around 290 pence, or 11.5 times forecast 2013 earnings. The earnings multiple is below the FTSE average, while a forward dividend yield of 3.2% is about in line with the market.
Hipster and hooked on drugs
Woodford's second-largest buy from among the U.K.'s blue chips was Smith & Nephew (SN 1.03%). The company, which makes hip-replacement and other medical devices, attracted a 175 million pound investment from Woodford.
My sums tell me he paid an average price of 632 pence for this stock, which is currently changing hands for more than 700 pence. The forward price-to-earnings (P/E) ratio of over 14 appears to be a fair rather than bargain rating, while the dividend yield is a subpar 2.3%.
Health care in general, but big pharma in particular, continues to be Woodford's most heavily backed sector. He has been a net buyer of Europe's five drugs giants.
The U.K.'s big two, GlaxoSmithKline and AstraZeneca, saw continued inflows, along with France's Sanofi and Swiss groups Roche and Novartis. Woodford dug deepest into the coffers for the last named, investing around 225 million.
Not ringing Woodford's bell
Following his much-discussed disposal of all the fund's shares in Tesco at the start of last year, Woodford's biggest sale since has been Vodafone (VOD).
In ditching the phone giant, he netted proceeds of more than 500 million pounds. I calculate he sold at an average price of 168 pence. The shares remain at around the same level, and the P/E on forecast earnings for the year to March 2013 is 11, falling nearer to 10 next year. The expected dividend yield is comfortably above 6%.
Oil blowout
Woodford has been out of the U.K.'s oil super-majors, Royal Dutch Shell and BP, since before the latter's disaster in the Gulf of Mexico. However, he had kept faith with gas specialist BG Group (LSE: BG) -- until recently.
The fund's entire holding in BG has now been disposed of, raising close to 500 million pounds. My sums put the average sell price at 1,261 pence a share. Newsflow since has been uninspiring and BG's shares are currently trading at 1,145 pence, putting the group on a forward P/E of over 14 with a skinny dividend yield of 1.5%.
Not so sweet
Tate & Lyle (TATE -0.23%) is another blue chip Woodford has sold out of completely. Proceeds from the disposal of the sweeteners and ingredients group amounted to over 160 million pounds at what I calculate to be an average sell price of 627 pence a share.
The sale of Tate doesn't look too timely at the moment because the shares are currently changing hands for 825 pence -- up over 30% since Woodford sold. Tate's forward P/E of around 15 and yield of 3.2% are broadly in line with the market average.
Secret of success
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 Woodford's market-thumping approach and some of the dividend-paying blue chips he currently favors, help yourself to the exclusive Motley Fool report, "8 Shares Held by Britain's Super Investor."
The report is full of valuable insights for all investors and is free to download right now: simply click here.
