May 2013: Following Woodford update

Hmm, well the 3 picks continues to make a charge and has now recorded a 17.39% increase since the beginning of the experiment. 
Still not enough to take it off the bottom spot as the Edinburgh Investment Trust is still showing a 20.57% increase.
But, the flagship High Income Fund managed by Neil Woodford remains out in front with a 23.07% increase.

Dividends came into the Investment Trust and the 3 picks, the latter receiving its dividend directly from British American Tobacco.
All 3 elements of the "picks" have stepped up lately with BT in particular being boosted by reception of its new marketing plans involving free issue of its quota of Premier League games with Broadband packages.
But it has also been a long time since Glaxo was last at £17, and BAT is continuing its long term rising trend.

As at the end of April, the 3 picks occupied 19.56% of the High Income Fund and maintained a position within the Funds top 10 holdings (http://www.invescoperpetual.co.uk: Invesco Perpetual High Income Fund).

			Shares	31.05.13
Inv. Perp. High Income			1110.14	6.65	7384.13	23.07%
	Residue				0.00
	Dividends
	Total		6000		7384.13	23.07%
Edinburgh Investment Trust			1182.00	5.85	6914.70	15.25%
	Residue				0.43
	Dividends				319.14
	Total		6000		7234.27	20.57%
3 Picks
BAT			61.00	36.23	2210.03	10.50%
Glaxo			138.00	17.14	2364.63	18.23%
BT			788.00	3.02	2380.55	8.57%
	Residue				0.00
	Dividends				87.96
	Total		6000		7043.17	17.39%
Transactions in the month:
Invesco Perp. High Income			N/A
Edinburgh Inv. Trust
Edinburgh Inv. Trust			23/05/2013	Div	59.1
3 Picks
	BAT		08/05/2013	Div	56.55

Click to enlarge, close to return.

Related post links:

- April 2013: following Woodford update.

- March 2013: "following Woodford" update.

- February 2013: "following Woodford" update.

- January 2013: "following Woodford" update.

- http://www.invescoperpetual.co.uk: Invesco Perpetual High Income Fund

Note: Unlike my Portfolio updates (Portfolio Updates.) which reflects an actual investment portfolio, "following" Woodford is an experimental strategy and a virtual portfolio.

April 2013; "following Woodford" update.

April's update of the "following Woodford" experiment and all 3 options are continuing to push ahead with the 3 picks actually managing to close a little of what has been an expanding gap between the 2 fund options directly manage by Neil Woodford and the 3 picks option.

Both of the actually managed funds are now punching up 20% gains with the 3 picks now notching up 11.24% incl. the receipt of a dividend courtesy of GlaxoSmithKline.

				Shares	Price	£Value	%Growth
	Inv. Perp. High Income			1110.14	6.50	7214.94	20.25%
		Residue				0.00
		Dividends
		Total		6000		7214.94	20.25%
	Edinburgh Investment Trust			1182.00	5.90	6967.89	16.13%
		Residue				0.43
		Dividends				260.04
		Total		6000		7228.36	20.47%
	3 Picks
	BAT			61.00	35.66	2175.26	8.76%
	Glaxo			138.00	16.61	2291.49	14.57%
	Vodafone			1191.00		0.00
	BT			788.00	2.76	2176.46	-0.74%
		Residue				0.00
		Dividends				31.41
		Total		6000		6674.62	11.24%
Transactions in the month:
	Invesco Perp. High Income			N/A
	Edinburgh Inv. Trust
	3 Picks
		Glaxo		11/04/2013	Div	30.36

Click to enlarge, close to return.

Related post links:

- March 2013: "following Woodford" update.

- February 2013: "following Woodford" update.

- January 2013: "following Woodford" update.

- February 2013: Portfolio update.

- http://www.invescoperpetual.co.uk: Invesco Perpetual High Income Fund

February 2013: "following Woodford" update.

Well the Invesco Perpetual High Income Fund has continued to move forward strongly and leads the way in this virtual experiment with a gain of 11.91% since inception.

The similarly run Edinburgh Investment Trust, which is also managed by Neil Woodford, trails despite a strong 8.74% showing.

Alas, the experiment of 3 picks continues to lag albeit with a positive 3.58% gain. 

Bizarre that the 3 picks has been negatively affected by Woodford's decision to exit Vodafone completely, his second such exit of  a FTSE 100 holding in the space of 14 months (Tesco being the last). 

Both decisions still seem strange to me given the long term value that I thought Woodford sought despite short term concerns. Similarly negative cashflow aspects continue to affect his largest holding, Astrazeneca, and the more recently topical holding in BAE.

The fact that Tesco is now closing in on its pre profit warning trading range and Vodafone has bounced since his exit with renewed prospects of some form of deal on its Verizon Wireless assets makes the decision to offload even more difficult to understand. After all it has been speculated this year.

You would think that with the funds size and shareholding influence and access to management that the prospects of a Verizon deal would have been discussed as a potential game changer.

Mystifying though and for me personally having to switch from Vodafone to BT makes the 3 picks much less attractive. 

But as debated last month (January 2013: "following Woodford" update.), I have kept faith to the experiments criteria and followed suit The main priority being a easy maintenance portfolio with not too much to think about other than to keep tabs on the High Income Funds top 10.

But where is the High Income Fund's outperformance, well there lies a tail.

I did also mention last month that if I was to widen my criteria to sector weightings in the whole portfolio I would have picked up industrials and ended up with BAE rather than BT and it is another industrial holding that has made the tops 10 this month and now sits at no 10 just behind BAE, and what is that holding?

Well at 3.74% that holding is now Rolls-Royce which is currently the largest holding in my personal portfolio.

Slightly galling to think that if I had delayed the decision to trade (which would have meant taking a tangent from the High Income Fund's top 10), then this month would have confirmed Industrials as the 3rd largest sector in the Top 10 and I would have had my pick of Rolls-Royce or BAE, both of which sit in my personal portfolio.

So Woodford's High Income Fund is wining this experiment with one of my own shares. I would suggest that it is a conspiracy on his behalf but that would be paranoid, or would it!

				Shares	Price	£Value	%Gain
	Inv. Perp. High Income			1110.14	6.05	6714.71	11.91%
		Residue				0.00
		Dividends
		Total		6000		6714.71	11.91%
	Edinburgh Investment Trust			1182.00	5.52	6524.64	8.74%
		Residue				0.43
		Dividends				260.04
		Total		6000		6785.11	13.09%
	3 Picks
	BAT			61.00	34.35	2095.05	4.75%
	Glaxo			138.00	14.56	2009.28	0.46%
	Vodafone			1191.00		0.00
	BT			788.00	2.68	2109.48	-3.80%
		Residue				0.00
		Dividends				1.05
		Total		6000		6214.86	3.58%
Transactions in the month:
	Invesco Perp. High Income			N/A
	Edinburgh Inv. Trust
				22/02/2013	Div	59.1
	3 Picks
		Vodafone		06/02/2013	Div	38.95
				15/02/2013	Sell	1976.56
		BT		15/02/2013	Buy	-2192.7
					Res	3.68

So chartwise a flat performance from the 3 picks and more dealing charges than foreseen when considering Neil Woodfords fund as a benchmark.

Click to enlarge, close to return.

Related post links:
- January 2013: "following Woodford" update.
- February 2013: Portfolio update.
- http://www.invescoperpetual.co.uk: Invesco Perpetual High Income Fund

January 2013: "following Woodford" update.

OK so I'm a bit late with the 3 picks update as I try to assimilate Neil Woodford's decision to offload the High Income Fund's remaining holding in Vodafone (http://blogs.telegraph.co.uk: Investment guru Neil Woodford sells Vodafone despite good results), following the company's recent reporting of disappointing quarterly revenues results. 

In spite of this:
"The company reiterated that it expects adjusted operating profit in the upper range of £11.1bn to £11.9bn for the 2013 financial year, while projecting free cash flow at the lower range of £5.3bn to £5.8bn. 

The results follow market forecasts of “growth deterioration” at the firm and a reliance on Verizon Wireless for revenues. 

Precisely for that reason, it is of import to point out that on the conference call the outfit's Chief Financial Officer, Andy Halford, said Vodafone’s cash-flow will beadequate to cover its future dividend payments. " (http://www.sharecast.com: Vodafone reports decline in quarterly revenues, confirms forecasts -UPDATE).

But, looking at January, it was a good month for all 3 options, as all 3 moved up strongly. 
Perhaps not enough for the 3 picks though which continues to lag the 2 managed options despite recovering quite strongly into a positive position with 3.74% gain to date.
Of the 2 managed options the flagship High Income Fund still leads the way with an 8.56% total gain, just ahead of the Edinburgh Investment Trust's 7.77% gain.

There were no transactions in the month to report.

			Shares	Price	£Value	%Gain
Inv. Perp. High Income			1110.14	5.87	6513.44	8.56%
	Residue				0.00
	Dividends
	Total		6000		6513.44	8.56%
Edinburgh Investment Trust			1182.00	5.30	6264.60	4.41%
	Residue				0.43
	Dividends				200.94
	Total		6000		6465.97	7.77%
3 Picks
BAT			61.00	32.83	2002.63	0.13%
Glaxo			138.00	14.45	1994.10	-0.30%
Vodafone			1191.00	1.72	2049.71	2.49%
	Residue				3.68
	Dividends				174.56
	Total		6000		6224.69	3.74%

Transactions in the month:
	Invesco Perp. High Income			N/A
	Edinburgh Inv. Trust			N/A
	3 Picks			N/A

Chart wise the picture is as follows:

Click to enlarge, close to return

So what to do now about Vodafone where my hand is being forced due to it no longer being a High Income Fund holding.
And, given that the strategy for the 3 picks is based upon selecting an investment from each of the 3 largest sector weightings in the top 10 of the High Income Fund, I now have to sell Vodafone (virtually), and replace it (virtually). 

Looking at the current top 10 as of the 31 January 2013, I can see that the fund is now hugely weighted towards Pharmaceuticals and Tobacco companies which now occupy the Top 6 spots and 39.27% of the whole fund. 
Further, assuming that Tobacco is being classed (here at least), as Consumer Goods then Reckitt Benckiser adds 4.90% to that figure.

Bizarre that the Top 3 holdings are Healthcare companies but the next 3 could be categorised as the antithesis of Healthcare.        

• Top 10 holdings                      %

1. AstraZeneca                         8.94
2. GlaxoSmithKline                  8.21
3. Roche                                    6.22
4. British American Tobacco  5.66
5. Reynolds American             5.29
6. Imperial Tobacco                 4.95
7. BT                                          4.95
8. Reckitt Benckiser                 4.90
9. BAE Systems                       4.78
10. Capita                                    3.73

• Total                                      57.64
• Total number of holdings:  113

The sector breakdown for the whole fund is as follows:

• Breakdown by industry sector   %
• Health Care                             34.25
• Consumer Goods                   21.42
• Industrials                                 20.42
• Utilities                                        8.19
• Financials                                   7.97
• Telecommunications                 5.21
• Consumer Services                  1.63
• Basic Materials                         0.29
• Technology                                0.12
• Unit/Investment Trust/Other      0.12
• Oil & Gas                                   0.02
• Cash                                           0.38
• Total                                         100

Based on the guiding rules so for, that would see me trade Vodafone for.... BT, as Telecoms continue to be the 3rd biggest sector represented in the Top 10.
Not ideal for me at all, as trading Vodafone for BT is not something I would personally choose to do.
Alternatively, the next sector in the top 10, and the 3rd largest weighted sector in the whole fund, would be Industrials as represented by BAE.

So its a coin toss between:

1. sticking to the Top 10 as the primary sector guide and picking BT,
2. using the whole fund as a sector guide and choosing BAE or,
3. a final option would be to pick another from the top 2 weighted sectors in the Top 10.

I was actually quite comfortable retaining Vodafone in this virtual experiment so this is giving me quite a quandary which, it wasn't ever intended to.

I will discount the last option as this will reduce diversification.

But the strategy was for the decisions to be guided by Woodford's actions so I will have to put personal views to one side and go for......BT?

Although it is tempting to go for BAE's higher yield.

I do think that Neil Woodford's current strategy has concentrated things hugely around 2 sectors within the Top 10 so I think it right to add the option of looking at the largest sector weightings in the whole fund as well.

As I first saw this on the published articles on the 11, I'll make the change at today though so thats the 15th Feb.

Related article links:
- http://blogs.telegraph.co.uk: Investment guru Neil Woodford sells Vodafone despite good results
- http://www.sharecast.com: Vodafone reports decline in quarterly revenues, confirms forecasts -UPDATE
- http://www.fool.co.uk: Woodford's Invesco Perpetual fund sells its stake in Vodafone Group plc (LON:VOD).
- http://www.invescoperpetual.co.uk: Invesco Perpetual High Income Fund