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Woodford pulls plug on utility sector

By This Is Money
Updated: 04:48 EDT, 15 February 2011

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Neil Woodford, one of the UK's leading fund managers, has sold his stake in a third water company after falling out of love with the utility sector.

Disenchanted: Neil Woodford has told utility regulators they are ignoring the needs of investors

The head of investment at Invesco Perpetual, who was Britain's largest utility investor for 20 years, has told regulators in the water and energy industries that they are ignoring the needs of investors, who have pumped hundreds of millions of pounds into renewing infrastructure in water and energy companies in recent years.

Invesco Perpetual's 9% stake in Northumbrian Water has now fallen to 4%. But a spokesman for the investor confirmed that Woodford had reduced his own shares to a level lower than 3%.

The veteran fund manager has also sold his entire holdings in United Utilities, owner of North West Water and Severn Trent.

The latest share sale brings his recent sales in the water sector to almost £500m.

Woodford said in his recent newsletter to shareholders that the sales 'reflected a concern that the regulated nature of the businesses could hamper their ability to provide a satisfactory return on equity to compensate for the risk of allocating capital to the sector'.

The water sector began a new pricing regime last April, which was widely acknowledged as a tough settlement. There have been fears that water firms will be unable to pay the hefty dividends on which funds like Woodford's depend.

He has also predicted that equity finance for infrastructure projects will remain unfulfilled.

The fund manager's fears for the utility sector were echoed by Charles Hendry, minister at the Department of Energy and Climate Change. He said that the big six energy companies could be driven from Britain if they are treated too harshly in any pricing investigation.

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