Is it time to stop following Neil Woodford’s stock picks?

Few UK fund managers can claim to have name recognition, but in financial circles, Neil Woodford is practically a household name.

The former Invesco Perpetual executive has been a star stock-picker for the past three decades, and he has made millions of pounds in interest for investors in his Woodford Investment Management (WIM) firm, since it was founded in 2014.

But recently his star has started to wane. WIM’s flagship Equity Income Fund was listed in the bottom two per cent of all funds in the Investment Association’s ‘UK Equities’ classification for 2018, having made a 12 per cent loss over the course of last year.

At its peak, the Woodford Equity Income Fund was worth £10.2bn, but in the 18 months between May 2017 and October 2018, it halved in value to £5.1bn. By May 2019, the fund size had fallen to just £4.4bn.

It is unsurprising then that many investors are choosing to withdraw their money from WIM, but in order to meet this rash of redemptions, Woodford has had to sell off much of his liquid portfolio. In early May, he sold his stake in peer-to-peer investment trusts VPC Specialty Lending and P2P Global Investments, raising £126m. He raised a further £42m by selling his share of NewRiver Reit to a former Invesco colleague.

Given that £300m was withdrawn from the fund between February and April 2019, it seems likely that Woodford will move to sell off more of his stocks and shares investments within the coming weeks and months.

Once the go-to guy for fixed-asset investments, Woodford’s brand has now been tarnished by years of bad luck and bad decision making. However, it is important to remember that what happens next will be an exercise in damage control, not a reflection of Woodford’s real-world finance views.

Many day traders have made a lot of money by mirroring the stock portfolios of the great and good of the UK equities scene. While Neil Woodford’s reign as the king of stock-picking may be coming to an end, his damage-control actions should not be mistaken for market advice. In fact, for savvy investors, there may even be an opportunity to pick up some cheap stocks which have been dragged down by the Woodford association. As ever, use your own judgment, but don’t let bad press blind you to potential opportunities.

Is it time to dump aerospace stock?

Brexit has had a big impact on the UK stock market, and the biggest casualties have been the manufacturing sector and the travel industry. Unfortunately, aerospace stock falls right in the middle of that Venn diagram, affected as it is by the cost of specialized equipment and building materials, as well as the demand for travel.

Add to this the ever-rising cost of aeroplane fuel, as well as escalating strike action among airline workers, and aerospace stock is beginning to feel like a risky place to keep your money.

So should you stick with aerospace stock?

Later this week, British Airways’ parent company International Consolidated Airlines Group (IAG) will reveal its first-quarter trading figures, and finance experts will be looking out for signs of long-term trouble at IAG and the aerospace industry as a whole.

In February’s final year results, IAG warned that profits were likely to be flat for the rest of the year, but that was before the Brexit extension was announced, raising hopes of a surge in summer bookings.

Beyond IAG, there have been signs of trouble at other aerospace stalwarts. Ryanair’s stock price has recently dropped to a 2-year low, while a series of crashes and allegations of mismanagement have seen Boeing’s stock plummet since the beginning of the year.

So is it really time to dump your aerospace investments, or does the current downturn represent an opportunity to buy them cheap?

The jury is still out on this, unfortunately. Day traders do have a chance to capitalize on low stock prices in the short term, but this is a risky move considering the very real threats that face airlines and aerospace businesses in the year ahead.

However, as some analysts have pointed out – stock performance in the aerospace sector has not been as bad as it could have been in recent months. In fact, the vast majority of analysts have listed both Boeing and IAG as ‘buy’ stocks – largely due to an increase in defence spending is up in the US and the UK.

Realistically, the aerospace sector is not going to go bust in the near future, but some companies are in a stronger position than others. As ever, diversity is the key, but choose your stocks wisely and you could make considerable gains while avoiding big losses.

 

How China weighs on HSBC’s earnings

HSBC will report its first-quarter earnings at the end of this week, but analysts believe that they already know what to expect. And it’s all because of China.

Over the past few years, HSBC has shifted its focus towards the East, building up its Asian presence and expanding its presence in China, in particular.

This is not wholly surprising – after all, HSBC stands for the ‘Hongkong and Shanghai Banking Corporation’. But having once positioned itself as a truly global banking brand, the HSBC group is now returning to its roots.

In 2007, HSBC became one of the first foreign banks to become incorporated in mainland China, and as of this year, more than 50 per cent of the bank’s earnings come from the Asian marketplace.

While this Asian exposure has helped to shield HSBC from the market volatility that has rocked UK, US and EU-based banks in recent years, it also comes with a downside.

China is a notoriously private economy, but it is clear that the county’s growth rate is slowing. In 2007, when HSBC entered the marketplace, China’s GDP was at an impressive 14.2 per cent. But just ten years later, in 2017, GDP had fallen to just 6.9 per cent. While this certainly outpaced the UK’s 2017 GDP (1.8 per cent), any economic slowdown represents a cause for concern among investors – particularly if those investors were seeing double-digit GDP growth just a few years earlier.

In a recent note to clients, analysts at Credit Suisse warned that HSBC’s first-quarter results could be at risk due to “weak capital markets”, with this weakness primarily driven by Brexit-based volatility in the UK, and lower than expected growth in China.

During the presentation of its 2018 full-year financials in February of this year, HSBC’s chief executive John Flint warned on the impact of the US-China trade war, and the overall slowing of China’s economy.

The bank missed its profit target for the fourth quarter of last year, with a pre-tax profit of $3.26bn for the three months ending 31 December 2018, down from $5.33bn in the previous quarter.

Clearly China has a significant and ongoing role to play in HSBC’s portfolio performance. If you want to predict HSBC’s future earnings, just look to China and work backwards from there.

 

Financial planning is important and here is why

Financial planning gives direction to your financial choices. When you have a basic plan, you can speculate on a scenario to determine the impact of future business decisions on the success of your investments.

Through a self-financing plan, you can identify short- and long-term investment goals and develop a balanced plan to achieve them.

Financial planning with the help of a professional financial advisor is a powerful tool to help you get where you want to. Here are the reasons financial planning is essential.

 

Income

With this plan, you can manage your income more efficiently. It can help you understand the amount you will need for other monthly business expenses, taxes and the amount you need to save.

 

Investment

The appropriate financial plan will take into account your circumstances, goals and risk tolerance. You can use it as a guide to help you choose the right investment based on your needs, goals, and personality.

Financial understanding

When defining measurable business goals, understanding the consequences of decisions and taking into account results can lead to better financial understanding, offer a new approach to your budget and improve the management of your economic lifestyle.

 

Increase the value of the company

Financial planning is crucial in areas that increase investor wealth. The goal of commercial activity is to achieve maximum and superior profitability, not only to maximise the investor’s wealth but also to maximise national wealth.

 

The Assets

Assets have liabilities. Therefore, determining the real value of an asset is very important. The knowledge of liquidation or cancellation of debt comes from your financial understanding. The whole process creates assets that will not get overloaded.

 

Capital

When your cash flow increases, your equity will also increase allowing you to consider more business investments to improve your economic welfare.

The first step in developing a financial plan is to meet a consultant. This process should start with a review of your current financial situation, expected changes, future goals, and results of your personalised plan. While you may not always know what the future holds, a well-established financial plan can help you, your family, or your business through the difficulties.