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Woodford ditches Glaxo in fund overhaul

Woodford ditches Glaxo in fund overhaul

Neil Woodford has ditched his holding in GlaxoSmithKline (GSK) after 15 years as he shifts his UK Equity Income fund towards domestic cyclical names such as Lloyds Banking Group.

Mr Woodford said frustration with GSK's strategy and performance had led to the sale of his position. The manager had £1bn invested in the company across his portfolios as of the start of 2017, according to S&P Capital IQ.

"Put simply, investing in Glaxo has been a frustrating experience, with three out of the four business units perennial underperformers. Some investors remain hopeful of recovery but I am now less optimistic," he explained.

He said he had made a "complete disposal" of the company from his £10bn Equity Income fund. It had accounted for 6.4 per cent of the portfolio at the end of March.

Mr Woodford has previously criticised GSK  for not splitting out its business streams in the name of shareholder value. The manager said his concerns, and those of other institutional investors, had gone ignored and were compounded by a change in chief executive last month.

"My base assumption now is that Glaxo remains a healthcare conglomerate with a sub-optimal business strategy, and shareholders face a cut to the dividend. These characteristics do not appeal to me as an investor," Mr Woodford said.

The manager has used this sale, a slight reduction in his position in British American Tobacco, and new inflows to up exposure to UK domestic names.

"As a result of our growing confidence in the long-term outlook for the UK economy, we have been selectively building a greater exposure to domestic cyclical businesses," he said.

As such, Mr Woodford has initiated a position in Lloyds Banking Group, on the expectation that the sector could fare better following a long period of post-crash rehabilitation.

"We view Lloyds as a well-managed bank with a conservative approach to its balance sheet. Its valuation looks very attractive in our view, and it has the ability to pay a very healthy and growing level of dividend," the company said.

The manager has also added UK brick manufacturer Forterra to the fund, in the belief it will benefit from steady growth in the domestic construction industry in the coming years.

Other new additions include housebuilders Barratt Developments and Taylor Wimpey, student accommodation developer Watkin Jones and other companies in the construction materials, real estate and technology services industries.

"We have been keen to take advantage of what we see as a compelling, contrarian opportunity in domestic stocks and the portfolio is now poised to capture that opportunity," he added.