Buy What Neil Woodford Bought -- Except Cheaper!

Published in Investing on 30 March 2012

He paid 13.75p per share, but you can buy for 12.25p.

City super-investor Neil Woodford, who manages more than £20bn within two Invesco Perpetual funds, is renowned for his love of big defensive blue chips, such as British American Tobacco (LSE: BATS), GlaxoSmithKline (LSE: GSK) and Vodafone (LSE: VOD).

But unlike many other mainstream managers, he does like a bit of a dabble in small caps. In the lower reaches of his Income and High Income portfolios, you'll find a number of little growth companies that you'd think really have no place in an equity income strategy.

I've given you the low-down on a couple of these companies in the past -- companies that you could buy at a lower price than Mr Woodford paid, and that I thought might be worth a punt. I've got another one for you today.

But first...'ll probably want to know how the first two Woodford wagers are doing.

The first opportunity I told you about was Proximagen (LSE: PRX), a little biopharmaceuticals firm, whose shares were trading at 87p but which Mr Woodford had bought at 140p. Today, the shares are 180p -- a gain of 29% for Mr Woodford, but a 107% appreciation from 87p.

The second opportunity I told you about was Juridica (LSE: JIL), an investment company that funds arbitration and litigation claims in the US. Juridica's shares were trading at 94p, which was 20p cheaper than Mr Woodford had paid. This one hasn't done the business (so far): the shares are 76p today, but there's been a special dividend of 7p, so running at about 12% down.

Sustainability and universities

A couple of themes struck me when digging down into the smaller holdings of the latest published portfolios of Invesco's Income and High Income funds.

There's a bit of a 'green and clean' theme going on, with exposure to Blackrock New Energy (LSE: BRNE), Ecofin Water & Power Opportunities (LSE: ECWO) -- both investment trusts that hold many companies -- and Leaf Clean Energy (LSE: LEAF), an investment company with a more aggressive portfolio of fewer than 10 holdings.

Then there's Trading Emissions (LSE: TRE), an investor in carbon credits currently doing an orderly realisation of its assets, MaxWest Environmental Systems, a US waste-to-energy group, and Waterlogic (LSE: WTL), a quite interesting-looking AIM-traded firm that manufactures and distributes point-of-use drinking water purification and dispensing systems.

The other theme that struck me was Mr Woodford's taste for university spin-out companies. He has a holding in IP Group (LSE: IPO), an investment company that provides capital and resources for the commercialisation of intellectual property, primarily through its partnerships with twelve research-intensive UK universities.

He's also bought into Imperial Innovations (LSE: IVO), an Imperial College London spin-out, as well as into another university spin-out -- Tissue Regenix Group (LSE: TRX) -- which is the company he paid 13.75p per share for, but which you can buy today at 12.25p.

Pigs may fly

Tissue Regenix is a York-based biotechnology company, which was spun-out of Leeds University and floated on AIM in 2010.

Tissue Regenix's technology takes pieces of pig, strips them of cells and DNA, leaving a scaffold or matrix for the regrowth of human tissue with no adverse immune-system response. The process has already been used to patch up veins in surgery and the company's first product, dCELL vascular patch, will be followed by a second product, dCELL meniscus, for repairing knee joints.

Although currently loss-making, Tissue Regenix's technology is potentially very disruptive to big players in the medical devices market. The company ran a placing of 182 million shares at 13.75p per share last December, raising £25m, and effectively avoiding having to sacrifice equity to a multinational.

Invesco took the vast majority of the placing shares, 97 million of which sat in Neil Woodford's High Income fund at 31 December. By 10 January, Invesco's stake in Tissue Regenix had increased from 26.2% to 28.6%, the additional purchase having been made when the shares were trading in the market at above 14p.

A sale of Tissue Regenix further down the line to one of the major players in the industry looks the likely route to realising shareholder value. The company's directors have the right CVs: executive chairman John Samuel was a partner in private-equity firm Apax Partners, while the non-execs include Alan Aubrey, who heads the aforementioned university spin-outs facilitator IP Group.

If pigs make Tissue Regenix's shares fly, they'll fly higher from the current price of 12.25p than from the 13.75p-plus Neil Woodford paid!

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mcturra2000 30 Mar 2012 , 7:13pm

Great article. It's always interesting to know what Neil Woodford is up to.

F958B 30 Mar 2012 , 8:08pm

I heard that Woodford also added Centrica a few months ago.
I also picked up some CNA at the start of the year.

However, for the long-term, I'd slightly favour Tesco over Centrica (I hold both), but Woodford dumped his Tesco holding after the drop in Tesco shares in January (a bit late to sell *after* the big drop) while Buffett probably picked up what Woodford threw out.

eccyman 01 Apr 2012 , 6:29pm


Re Tesco. Yes Woodford did bail out of Tesco at same time as Buffet dived in (perhaps Buffet bought Woodfords shares?). Thing is, I reckon Woodford has his finger on the Tesco pulse more than Buffet does. Sure Buffet can look at the figures, but woodford can look at the stores..

F958B 01 Apr 2012 , 7:46pm

Even Woody doesn't get everything right; he bailed on NG.,SVT and UU. late in 2010 (citing regulatroy concerns), but they all did much better than the market average during 2011.

I think that Woody will regret his sale of Tesco - unless he had something particularly attractive to roll the proceeds into.

Tykethat 02 Apr 2012 , 12:45pm

Mr Woodford also sold Shell too, another business that has grown significantly since.

He will also have to have a strategy to move his massive tobacco holdings on too, if he waits too long he will struggle to find someone to take them off his hands.

Tykethat 02 Apr 2012 , 12:48pm

Great article Moby !

Just as an aside, do you know if Herald IT is taking an interest in these microtech and microbio opprtunities.

Kind regards


F958B 02 Apr 2012 , 1:28pm


Yes, I'd generally prefer to be holding the big food retailers than tobacco, at this time and at current valuations.

Tobacco is a great business to be in (and I hold IMT) but the tobacco shares are now fairly valued.
The food retailers, on the other hand, are considerably undervalued based on worries over the retail sector. However, food retail is a much more resilient business than general retail; we can only cut back a limited amount on what we eat, but we can cut back considerably on electronics and clothing.

In fact, in true contrarian style, I'd be content with a *long-term* portfolio of only the big three food retailers and nothing else:

Morrrison (MRW)
Sainsbury (SBRY)
Tesco (TSCO)

However, I do not recommend such a concentrated portfolio for most investors!

Charleskevin 02 Apr 2012 , 1:47pm

IVO today is 340p. You quote the price at 12.25p Shurely shome mishtake? Are we talking about the same company?

Sotograndeman 02 Apr 2012 , 1:51pm

Even ignoring the fact that he sold TSCO when Buffett was backing up the truck, Woodford's portfolio brings strongly to mind Buffett's adage that diversity is a surrogate for ignorance.

F958B 02 Apr 2012 , 3:10pm


I have a lot of respect for Neil Woodford, but that doesn't mean that he's never going to make a mistake.
We all make mistakes, but Woodford makes fewer than most on a long-term view.
The overall performance of the portfolio is what matters.
Whether Woodford was right or wrong about Tesco, it would only affect several percent of his portfolio at the most, and he may have found something better (in his opinion) to do with the money.

Often I am in agreement with Woodford (and I have large holdings in a handful of his top ten - I list my portfolio in my profile) but I disagree with him about Tesco on a three-to-five-year-view.
As for next week or next month, that's too short-term to draw any conclusions.

XMFTarantula 02 Apr 2012 , 3:10pm

Hi Charleskevin

The company "you can buy today at 12.25p" is the "another university spin-out", not IVO, and which is discussed in the next paragraph - ie, Tissue Regenix Group (LSE: TRX).

But it does read a bit confusingly, so we're amending the article to make it clearer.

Sotograndeman 02 Apr 2012 , 7:55pm


Thanks, but you miss my point entirely. I was not referring to short term performance - which is as you rightly say irrelevant - or to making mistakes, but rather to the need to hold so many, including many small, positions. It leads to mediocre performance. Of course, it's not only Woodford who sins on this. Most 'money managers' do. Can our 35th best idea possibly be interesting or meaningful to our portfolio?

It's a point which Buffett and Munger have hammered on for what seems like an eternity. And as we all know, they have shown unambiguously how good concentration can be for your financial health. No-one seems to take much notice.

I agree about TSCO. I believe it has a great longterm future and that Woodford showed his naivety in selling. I'd be willing to bet that TSCO will outperform his portfolio over the next 5-10 years.

F958B 02 Apr 2012 , 8:16pm

Hi Sotograndeman

".....many small, positions. It leads to mediocre performance....."

I agree. Diworsification.

I also tend to run a concentrated portfolio (listed in my profile and updated most days after the close).

I also commented earlier on this topic ( 1:28pm) that I'd be content to hold a "portfolio" (if anyone could call it that!) which invested in only the big three FTSE food retailers.

F958B 02 Apr 2012 , 8:20pm

In my opinion, many investors use diversification as a way to blame anything but themselves for mediocre performance.

Those who mimic "stamp collectors" who must have one company from every sector, regardless of the price tag the market puts on that company.

Those who must hold a mixture of asset classes (bonds, property, cash, equities, commodities, alternate), regardless of the fundamentals or value for money.

M0byDick 02 Apr 2012 , 8:37pm

@Tykethat - I don't think Tissue Regenix, or biotech generally, is Herald IT's area. Herald's more media/communications technology.

Sotograndeman 02 Apr 2012 , 8:53pm


Must say I'm with you all the way on both posts. Buffett once remarked that finance was the only profession where, unlike say dentistry or surgery, the experts brought so little value. Diworsification is a major culprit.

I did see your proposed portfolio of food retailers - and can imagine it doing extremely well. I bought a sizable chunk of TSCO on the recent downdraught.

I'll take a look at your actual port. Thanks. I also run a concentrated port, mainly of US names.

CD57 13 May 2012 , 7:15am

Neil Woodward hold JJB, he also holds CLIG which also holds JJB is this a case of double the risk. Or support amongst friends.

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