Woodford Investment Management has shared the firm’s insight into prospects for the top stocks in its £8.3bn Equity Income fund, including Legal & General and GlaxoSmithKline.
In a monthly blog for investors, fund manager Stephen Lamacraft highlighted the firm’s outlook for the ten companies.
The top holdings in the Woodford Equity Income fund are: Imperial Brands, GlaxoSmithKline, AstraZeneca, British American Tobacco, BT, Reynolds American, Roche, Legal & General, BAE Systems and Provident Financial.
Commenting on Legal & General, Lamacraft said Woodford IM was “less concerned” about the group than others in the market, despite its exposure to corporate bonds.
“We are less concerned – the company does indeed hold a substantial portfolio of corporate bonds on its balance sheet but we are reassured about its quality and diversity.
“We see its recent weakness as unjustified, given its strong cash generation, high yield and the fact that it looks well placed to deliver attractive rates of dividend growth.”
Moving onto GlaxoSmithKline, which Neil Woodford has criticised in the past and suggested should be broken up, Lamacraft said the team expected a positive earnings surprise from the pharmaceutical giant.
“Glaxo’s management team has successfully managed expectations down over the last twelve months to a level from which they can deliver positive earnings surprises.
“This hasn’t been a comfortable journey for shareholders but we continue to see substantial long-term value, believing that the sum of Glaxo’s constituent parts is significantly greater than the whole, as reflected by the current share price.”
Meanwhile, the firm remains optimistic on its three tobacco companies; Imperial Brands, Reynolds American and British American Tobacco. Woodford has historically been a big supporter of the tobacco sector and the fund’s top holdings in this area were described as offering impressive and dependable growth, with Imperial Brands and Reynolds American both benefitting from recent M&A activity.
“Tobacco has, over the years, proven itself to be an extremely dependable industry – delivering steady and sustainable growth in cash flows, earnings and dividends year in, year out, regardless of the economic environment,” according to Lamacraft.
The Woodford Equity Income fund has returned 3.7% over one year to 7 March, according to FE Trustnet, versus an IA UK Equity Income sector average loss of 1.2%.