Neil Woodford has ended his 20-year love affair with tobacco by selling out of British American Tobacco (BAT) in the belief that the opportunity in the sector has “largely played out”.
Having begun to trim his holdings in May as part of a shift towards cyclical stocks, Mr Woodford closed positions in his £10bn Equity Income and £670m Income Focus funds in June. The Income fund had a 3.7 per cent weighting in the company as of May 31.
“We completely sold the fund’s position in BAT, which has been in the portfolio since its inception and a part of Neil’s mandates practically throughout his career,” Woodford Investment Management’s Mitchell Fraser-Jones said.
“During the bubble, old economy stocks like BAT became completely unloved by the market – at the peak of the dotcom bubble in March 2000, you could have bought shares in BAT for just £2.25 per share. We have recently disposed of the holding at over £50 per share.”
The firm noted that while tobacco had been the best performing sector in the UK stockmarket over the past two decades because of a combination of dividend income, dividend growth and a re-rating to “more appropriate valuation territory”, the broad appeal of the industry now looked diminished.
“We still retain some exposure to tobacco through Imperial Brands, which remains undervalued in our view, but the valuation opportunity elsewhere in the sector has largely played out.”