Two major UK equity fund managers used the severe market drop in October to snap up favoured stocks and initiate positions in new holdings.
Neil Woodford and Schroders’ Philip Matthews both took advantage of the whipsawing markets in October by picking up what they perceived to be cheap stocks overly impacted by the falls.
The FTSE All-Share index fell 0.7 per cent in October, a figure that masks how rapidly the market moved in the month. By October 16, the index had fallen more than 6.3 per cent – wiping billions off the value of stocks – but did manage to recover the bulk of the losses.
Mr Woodford, whose CF Woodford Equity Income fund is now nearly £3.4bn in size, bought into engineering outsourcing business Babcock International for the first time, as well as topping up favoured plays BT and Capita.
Mr Matthews, who has now run the UK Alpha Plus fund for more than a year, said he also took advantage of market weakness by adding to existing holdings Carnival and Daily Mail & General Trust.
He also bought EnQuest stock amid the falls in October because the share price of the oil exploration company dropped. The company’s shares have more than halved from 107.8p on October 1 to 69.1p.
“October was a very volatile month,” he said. “It was not down that much by the end of October, but there were pretty significant swings in the FTSE 100 and FTSE 250.
“Some opportunities did arise and I added to them during the period.”
The manager said UK Alpha Plus, managed by Richard Buxton before he joined Old Mutual Global Investors, now had more than 50 stocks, as opposed to nearer 30 previously.
Mr Woodford also added to Rolls-Royce during the first half of October amid the falls, and bought even more after a cautious trading update from the engine manufacturer further damaged its share price.
The company issued the statement on October 17 and the share price bottomed at 779.5p on October 27. It has since rebounded more than
12 per cent to 874p.
Stephen Lamacraft, fund manager at Woodford Investment Management, said: “We often find ourselves reacting with a polar opposite response to the market on profit warnings.
“As long as we can retain confidence in the fundamental long-term investment case, we will take any panic-selling as an opportunity to capture more long-term upside potential.
“The trading update from Rolls-Royce was unarguably disappointing, but we were surprised to see the shares sell off so aggressively. We exploited this short-term weakness.”
He said Capita’s sharp share price fall was “unjustified” and that BT’s share price fell “due to a slowdown of growth in consumer broadband subscriptions”. But he added that the firm continues to view the long-term outlook for both companies “very positively”.
Mr Lamacraft said the Woodford team had been monitoring Babcock for “some time”.
He highlighted the company had “a substantial forward order-book, good earnings visibility through long-term contracts, and looks well positioned to deliver sustainable long-term growth in shareholder returns”.