Here's what Neil Woodford is buying and selling

20 October 2016
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It was a volatile month, but many stock market investors would likely have made money in September. Overcoming US interest rate concerns, shares began a rally late in the month which would end in a record high for the FTSE 100 weeks later.

Star manager Neil Woodford suffered mixed fortunes, however, and he's made some adjustments to his popular funds.

Woodford's Patient Capital Trust was in positive territory for September, driven by the portfolio's biotech and healthcare stocks, but his £9.4 billion Woodford Equity Income fund (which is a Moneywise First 50 fund), delivered a "marginally negative" return.

Clearly, a grim profits warning at outsourcer Capita was the biggest hit to performance. The firm, responsible for large swathes of NHS admin, the London congestion charge and military recruitment, cut profit forecasts by as much as 13%, but Woodford is keeping the faith.

Winners and losers

"We have met the management to delve more deeply into the issues that the company faces and are reassured that the company is already doing some of the things it needs to do in order to restore the business to a healthier growth trajectory," he said on Wednesday.

"Although the market is clearly worried about the sustainability of Capita's dividend and the prospect of a dilutive rights issue, we are confident that the dividend is safe and that an equity issue will not be required.

"We added slightly to the holding towards the end of the month at a very depressed share price level."

Next took a pounding, too. While half-year results and guidance for 2017 met forecasts, sterling weakness will force up prices and there are concerns about how consumers will react.

However, Legal & General edged higher as investors decided Brexit might not have as big an impact as first feared. Woodford took his chance to top up his stake, as he did with several other holdings, including Provident Financial and GlaxoSmithKline. Acquisitions were bankrolled by trimming his position in Swiss drugs giant Roche.

Fragile outlook for resource firms

Looking ahead, Woodford doubts OPEC will actually agree a deal to cut production at a meeting in Vienna next month. Given the oil cartel's track record, he could be right.

"In the meantime, demand fundamentals for oil, and indeed other commodities, remain fragile and deteriorating," Woodford says. "As such, we continue to avoid resource-related stocks and focus on investment opportunities that are more in control of their own destiny."

How to play an oil price rally

At the investment trust, Prothena and Theravance Biopharma delivered solid returns, playing catch up following positive newsflow on pipeline developments in previous months.

There were also gains at 4D Pharma which released its interim results, while news of rising sales of schizophrenia drug Aristada proved a boost to Imperial Innovations, which had invested money in supplier Alkermes. That offset losses at Oxford Pharmascience, where an institutional investor was keen to exit the shares.

Woodford chose not to sell any shares in trust constituents last month, but he did buy a maiden stake in ambitious unquoted memory foam mattress firm Eve Sleep.

This article was written for our sister website Interactive Investor.

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