Woodford disposes of GSK stake as he backs the British economy

NEIL WOODFORD, Britain’s most high-profile fund manager, has sold his entire stake in Glaxosmithkline because of the drug maker’s refusal to consider a break-up and his doubts about the sustainability of the company’s dividend.

He has used the proceeds of the sale to invest in domestically focused firms such as Lloyds Banking Group, Barratt Developments, Taylor Wimpey and British Land, saying he was much more optimistic about the British economy.

He had held shares in Glaxosmithkline for more than 15 years and it was the third-largest holding in his Woodford Equity Income fund as recently as March 31, according to Morningstar, the fund analyst.

Mr Woodford described three of the drug maker’s four divisions as “perennial underperformers” and said he was concerned about threats to the fourth, which focuses on HIV treatments.

“Over the past three years, [this division] has been responsible for more than half of Glaxo’s growth. If the company’s one remaining growth engine starts to falter, this could pose a threat to its future revenue growth, earnings and cash flows,” he said in an update to investors yesterday. Mr Woodford said he was also concerned about “the lack of a rich pipeline and the lack of strategic options which results from an already stretched balance sheet” and said that his concerns left him “less convinced that Glaxo’s dividend is sustainable”.

The star fund manager said he had tried for years to persuade the group to split itself up into more focused businesses, but to no avail. Mr Woodford sounded a remarkably upbeat note about the British economy, saying many investors were “far too pessimistic” about the effects of the Brexit vote.

“I think the market has become too cautious about the rising inflation and about broad economic activity,” he said. “We have record levels of employment and job vacancies – and the one other very significant factor, for which I’ve been waiting for some time, is that the credit environment has begun to normalise.

“The banks are now broadly repaired in the UK. They will continue to rebuild capital. But now they are lending to the economy – it is the first time since the financial crisis that credit has flowed to the economy at an acceptable price.”

Glaxo declined to comment.