Money and Finance
Cloning is a great American tradition. Specifically, there's a long history of Americans successfully cloning British ideas, think about "The Office." Who was better David Brent or Michael Scott? Who cares, they were both great. In that spirit let's take it to stocks, and cloning ideas from great investors, done right, is a solid strategy.
Neil Woodford manages stock market thumping Equity Income funds for several decades. Todd Wenning points out that Woodford's distinctive style and excellent results can be traced back to a focus on dividend growth.
Its interesting to follow Woodford's portfolio for both individual selections and for what areas he avoids. For a fund that dwells in the Equity Income segment, he has long eschewed some traditional dividend paying sectors like energy and banks.
Woodford's main stock picks naturally are heavily slanted to the UK, but I wondered if he worked in the US, what stocks would he buy?
So I put together a list of Woodford's top ten holdings and then looked for a rough US equivalent.
One note is that the current S&P 500 yield is 1.9% whereas the FTSE 100 yields 3.2% Woodford's Equity Income fund has a goal to achieve a 4% yield. To do 4% today in the US means a pretty limited pool - utilities (and many of those are less than 4%), MLPs, and some distressed stocks. So for our "US" version of Neil Woodford portfolio I will use a range around 2.5% instead of 4% to account for the lower base of the overall US market.
The most challenging parts of cloning Woodford's approach for a US investor is right at the top. Woodford has positioned for a slow/low/no growth world with a lot of healthcare. Three of his top ten and two of the top three are big pharmas that pay excellent dividends - AstraZeneca, GlaxoSmithKline, and Roche. That group averages a 4.4% yield, hard to come by these days from anywhere much less excellent, wide moat companies like these. The best US proxies I can think of are JNJ, Merck, and Baxter. These companies can deliver a lot of quality, but they cannot deliver the same yield as Woodford's bunch, they only amount to a 3% average yield.
Next up, Consumer, which in Woodford's portfolio means tobacco. Three big international tobacco companies - Imperial Tobacco, British American Tobacco and Reynolds American for an average yield of 4.2%. We can draft Reynolds onto US Woodford plus add Altria and Phillip Morris, and we get a 4.2% yield as well. Given that the US market offers lower yields, the tie goes to US Woodford.
Woodford added BT after a spell of not owning much in the way of Telcos (another traditional dividend haven). Here the US Woodford is in a good position Verizon yields more than BT.
For industrials, Woodford holds Capita and BAE, defense and utilities have long been stalwarts in his holdings. The average yield here is 3.3%. Unlike pharma, this is a fairly fertile area in the US for dividend seekers, I did not have trouble finding quality companies with solid yields, and I could have gone into pipelines, REITs and other sectors, but sticking with the same kind of construction - Southern Company, GE, and Lockheed combine for an average 3.7% yield.
Overall, Woodford's fundamental approach to both stock selection and stock sectors to avoid (energy, financials, tech) looks to travel across the Atlantic very well. Outside of pharma there are rough US equivalents that deliver similar and in some cases arguably better characteristics. Hybrids are the strongest plants in nature, why not plant a British tree or two in the US. What do you think of the selections? Which ones would you choose to make a US Woodford clone?
- Neil Woodford Is Going His Own Way
There was big news today in the income investing world as UK fund manager Neil Woodford announced he will leave Invesco Perpetual in 2014, after managing money there for 25 years. When I first saw the headline, I thought he might be pulling...
- Neil Woodford Bbc Interview
Neil Woodford does not get covered all that much in the US, but there is a lot to like about his approach. Todd Wenning's excellent Income Investor Manifesto post really gets at the heart of the subtle yet crucial difference in the Income investor...
- The Surprising Link Between Jeff Bezos And Neil Woodford And What It Means To Dividend Investors
On the surface it appears that Amazon and Jeff Bezos are worlds away from anything a dividend investor would care about. After all, Amazon struggles to even show earnings, much less pay a dividend. But remember the first rule of investing, you are...
- Glaxosmithkline - Stout Yield Worth The Risks?
GlaxoSmithKline is the second stock that I added to the Wide Moat Dividend (WMD) portfolio. The positives are pretty clear - a 5.6% yield really stands out in this yield parched world. All the better when it comes from a defensive company like Glaxo and...
- High Yield Reads - 7/13/14
Summary of recents posts and pieces of interest, sometimes enduring, to investors: Josh Peters on dividend and buyback debate: the record for buybacks was set in 2007 near previous market highs, then when prices improved companies were concerned with...
Money and Finance
Cloning Woodford
Neil Woodford manages stock market thumping Equity Income funds for several decades. Todd Wenning points out that Woodford's distinctive style and excellent results can be traced back to a focus on dividend growth.
Its interesting to follow Woodford's portfolio for both individual selections and for what areas he avoids. For a fund that dwells in the Equity Income segment, he has long eschewed some traditional dividend paying sectors like energy and banks.
Woodford's main stock picks naturally are heavily slanted to the UK, but I wondered if he worked in the US, what stocks would he buy?
So I put together a list of Woodford's top ten holdings and then looked for a rough US equivalent.
One note is that the current S&P 500 yield is 1.9% whereas the FTSE 100 yields 3.2% Woodford's Equity Income fund has a goal to achieve a 4% yield. To do 4% today in the US means a pretty limited pool - utilities (and many of those are less than 4%), MLPs, and some distressed stocks. So for our "US" version of Neil Woodford portfolio I will use a range around 2.5% instead of 4% to account for the lower base of the overall US market.
The most challenging parts of cloning Woodford's approach for a US investor is right at the top. Woodford has positioned for a slow/low/no growth world with a lot of healthcare. Three of his top ten and two of the top three are big pharmas that pay excellent dividends - AstraZeneca, GlaxoSmithKline, and Roche. That group averages a 4.4% yield, hard to come by these days from anywhere much less excellent, wide moat companies like these. The best US proxies I can think of are JNJ, Merck, and Baxter. These companies can deliver a lot of quality, but they cannot deliver the same yield as Woodford's bunch, they only amount to a 3% average yield.
Next up, Consumer, which in Woodford's portfolio means tobacco. Three big international tobacco companies - Imperial Tobacco, British American Tobacco and Reynolds American for an average yield of 4.2%. We can draft Reynolds onto US Woodford plus add Altria and Phillip Morris, and we get a 4.2% yield as well. Given that the US market offers lower yields, the tie goes to US Woodford.
Woodford added BT after a spell of not owning much in the way of Telcos (another traditional dividend haven). Here the US Woodford is in a good position Verizon yields more than BT.
For industrials, Woodford holds Capita and BAE, defense and utilities have long been stalwarts in his holdings. The average yield here is 3.3%. Unlike pharma, this is a fairly fertile area in the US for dividend seekers, I did not have trouble finding quality companies with solid yields, and I could have gone into pipelines, REITs and other sectors, but sticking with the same kind of construction - Southern Company, GE, and Lockheed combine for an average 3.7% yield.
| Sector | Woodford | US Woodford |
|---|---|---|
| Pharma | AstraZeneca (4.2% yld) GSK (5.6%) Roche (3.3%) | Johnson & Johnson (2.8%) Merck (3.1%) Baxter (3.1%) |
| Consumer | Imperial Tobacco (4.5%) British American Tobacco (4.4%) Reynolds American (3.8%) | Altria (3.8%) Reynolds American (3.8%) Phillip Morris (4.9%) |
| Telco | BT (2.7%) | Verizon (4.4%) |
| Industrials | Capita (2.5%) BAE (4%) | Southern Company (4.7%) GE (3.5%) Lockheed Martin (2.9%) |
Overall, Woodford's fundamental approach to both stock selection and stock sectors to avoid (energy, financials, tech) looks to travel across the Atlantic very well. Outside of pharma there are rough US equivalents that deliver similar and in some cases arguably better characteristics. Hybrids are the strongest plants in nature, why not plant a British tree or two in the US. What do you think of the selections? Which ones would you choose to make a US Woodford clone?
- Neil Woodford Is Going His Own Way
There was big news today in the income investing world as UK fund manager Neil Woodford announced he will leave Invesco Perpetual in 2014, after managing money there for 25 years. When I first saw the headline, I thought he might be pulling...
- Neil Woodford Bbc Interview
Neil Woodford does not get covered all that much in the US, but there is a lot to like about his approach. Todd Wenning's excellent Income Investor Manifesto post really gets at the heart of the subtle yet crucial difference in the Income investor...
- The Surprising Link Between Jeff Bezos And Neil Woodford And What It Means To Dividend Investors
On the surface it appears that Amazon and Jeff Bezos are worlds away from anything a dividend investor would care about. After all, Amazon struggles to even show earnings, much less pay a dividend. But remember the first rule of investing, you are...
- Glaxosmithkline - Stout Yield Worth The Risks?
GlaxoSmithKline is the second stock that I added to the Wide Moat Dividend (WMD) portfolio. The positives are pretty clear - a 5.6% yield really stands out in this yield parched world. All the better when it comes from a defensive company like Glaxo and...
- High Yield Reads - 7/13/14
Summary of recents posts and pieces of interest, sometimes enduring, to investors: Josh Peters on dividend and buyback debate: the record for buybacks was set in 2007 near previous market highs, then when prices improved companies were concerned with...