Thought's on the Woodford equity income fund

Thrugelmir wrote: »

. Likewise Imperial Brands is a core income generator.

Imperial Brands share price is down 13.5% over the past three years. It may be a core income generator but why would you want income at the expense of capital growth.

Terry Smith on Imperial:

In the letter to shareholders, Smith explained the rationale behind the sale of his stake in Imperial Brands (IMB +
), the tobacco company he has held since the launch of his flagship fund more than seven years ago.

Smith sold the stake in November last year and said he had become worried about the positioning of the cigarette company, formerly known as Imperial Tobacco.

'We had become increasingly concerned about the company's positioning in terms of its lack of exposure to the developing world and to the next generation reduced risk products such as heat-not-burn devices, all of which has led to volumes falling at a rate it is difficult to cope with,' he said.

'We were even more concerned by the management reaction which we literally could not understand.'

Imperial Brands reported a 4.1% decline in volumes in its 2017 financial year, as it announced small-scale trials of products that heat, rather than burn, tobacco.

But that came too late for Smith, as the company trails rivals such as Philip Morris International (PM.N), a top 10 holding for Fundsmith, whose heat-not-burn product is awaiting approval from the US Food and Drug Administration following successful roll-outs in Japan, Italy and Switzerland.

Smith's sale is all the more significant given his investment philosophy, which emphasises minimal portfolio trading and holding companies for the long term, and his enthusiasm for tobacco companies.

The manager has long argued that increasing government intervention in the sector, including bans on advertising and marketing, had served to strengthen its investment case, by effectively protecting existing companies given the large barriers to entry for new firms.

Smith's stance on Imperial Brands meanwhile puts him at odds with Woodford, another longstanding backer of tobacco companies.

Woodford has sold a number of tobacco companies from his LF Woodford Equity Income +
fund, such as British American Tobacco (BATS +
), Philip Morris International (PM.N) and Altria (MO.N), but has kept Imperial Brands as his top holding.

Imperial Brands was one of only two companies in Smith's concentrated portfolio, currently comprising 27 stocks, to lose him money in 2017.

Who would you back? Smith or Woodford?

cogito wrote: »

Which amongst us amateurs is nimble footed enough to know when a share is mispriced?

Me? I've made a lot of money over the years by picking the right companies. (I've also missed some and I've had spectacular misses as well) but its not hard if a trend starts happening in an area you work in or are knowledgeable in, to get ahead of the big fund managers.



And by mispriced, what i mean is, not allowing at all for future trends. They can certainly read the accounts better than I can but accounts are backward looking and dont account for say a 100-fold increase that you may "know" is coming but analysts / fund managers are frankly too dumb to know or understand. I was buying Apple shares well before Carl Icahn, Warren Buffet and probably 99% of investment managers. As were many other "little investors" . Not that I'm a genius, i missed Amazon completely, and Tesla, and i can argue i should have spotted Amazons potential.

cogito wrote: »

None of us has access to the information available to the pros to be able to get ahead of the game. That's what we pay fund managers for as we can figure out, within reason, who are the better ones.

Fund managers, despite their massive teams and supposed knowledge can often be blind to forthcoming trends and paradigm shifts and miss them altogether either by sticking with current companies for too long or not picking the new entrants. Given the subject of this thread, Woodford has made some absolute recent clangers in stock selection.



And on the subject of those in the know , I recall reading an analysis of Kodak in something like the Economist or Business Week, in the year before its shares fell off a cliff when digital "happened", recommending the company as a solid investment that had a

plan for the future. The so-called experts had completely missed the paradigm shift that was digital that was only a year or so away.



There are plenty of other examples of the "experts" being at least as wrong footed as the "average investor" and much less well-informed than those in the area through work or a hobby or some other personal knowledge. Certainly for companies i invest it, I cant even count how many utterly dumb analyst reports I've read on companies that completely miss the mark and often they've provided a great buying opportunity. Which is why over time I've been transitioning to index funds because i have little faith in most managers. Terry Smith I'm currently sticking with and SMT but i dont have many active funds any more.

AnotherJoe wrote: »

Wow. So just to add to my comments above , and since I mentioned my missing Tesla as an opportunity though no reason i should have i dont follow the motor industry) , there are some so-called experts out there that run multi-billion $ hedge funds looking very very stupid right now as Elon Musk talks about taking tesla private at $420 a share.

You'd think that experts who had billions of dollars under management would be super smart and not get caught out like this ?These guys (two in particular, Einhorn and Chanos) are quite possibly going to lose literally tens of billions $ over the next few weeks.

He is only talking about it at this stage. It might be nothing more than a shot across the bows but I don't blame Musk for considering going private. His business is currently fair game for hedge funds looking to make money without actually contributing anything to the development of the company and arguably damaging its prospects.

Musk has talked about paying shareholders $420 against a peak of $380 or so.


How does that cause the end of the world to the investors?


Presumably the source of funding to buy out any shareholders who decide to accept this will be the very hedge funds who, of course, employ the experts (no use of "so called" or inserting in quote) that you denegrate so much.