Woodford funds hit by “illogical move” from BAE
Both of the star manager’s flagship income portfolios have around 4 per cent invested in the UK aerospace firm.
By Jenna Voigt, Features Editor, FE Trustnet
Thursday September 13, 2012
Invesco Perpetual Income and
High Income are among 37 funds that have been harmed by exposure to BAE Systems after the firm announced it was in merger talks with the European Aeronautic, Defence & Space Co (EADS).
Shares in BAE Systems took a nosedive on the news, shedding 9.2 per cent on concerns the combined company would fail to create a legitimate rival to US defence and engineering firm Boeing.
The sector-leading Invesco portfolios both include the company in their top-10 holdings, with each holding a position of around 4 per cent.
Funds with the highest exposure to BAE Systems
Source: FE Analytics
Woodford was unavailable for comment.
The FE Alpha Manager's High Income fund is top-quartile over three and five years, while the Income fund narrowly dips into the second quartile over both periods.
Both funds, which traditionally outperform in down markets, are top-quartile over 10 years, but have lagged their peers after the rally of recent months.
Performance of funds vs sector and index over 5-yrs
Source: FE Analytics
Invesco Perpetual is one of BAE’s biggest shareholders, owning 13.02 per cent of the firm, a stake it increased last month.
Invesco’s £119.5m
UK Aggressive and £785.2m
UK Growth funds each hold more than 5 per cent of their assets in BAE.
BAE is the top holding in Julian Chillingworth's £48.3m
Rathbone Blue Chip Income & Growth fund.
The manager says he needs to know more about the new company’s dividend policy and structure before he decides what to do with his position.
"It’s got quite a long way to go on this," he said. "It’s fraught with political problems. I think it will go ahead but it will take a while."
The share price of French-listed EADS also took a hit, losing 10 per cent of its value on the news.
Invesco’s £894.9m European Equity fund, run by Jeffrey Taylor, holds nearly 3 per cent in the company.
Funds with the highest exposure to EADS
Source: FE Analytics
Mike Jennings, co-manager of the £51.8m
Premier Global Strategic Growth fund, also has a significant position in EADS.
He says he was disappointed by today's announcement and more than halved the fund's exposure to EADS this morning because he thought the move was “illogical” for the aerospace company.
In a recent FE Trustnet article, Jennings and co-manager Jake Robbins highlighted the aerospace industry as one of their biggest sector bets.
Jennings and
Robbins will review their remaining holdings in the stock over the next several days.
"[The announcement] dilutes my enthusiasm for owning EADS," Jennings said. "When the news broke yesterday we had to read it twice because the logical move would have been for BAE to buy EADS’ defence business off of them."
"So we would have expected the opposite of this. That would have seemed a logical move for both of them and I would have expected the stocks to have rallied on the back of that."
Jennings says the firm had a strong commercial proposition in Airbus and claims the move would "diversify the company away from a strong commercial story to a very uncertain defence story".