TheChek News Flow

It has been nearly two months since Malaysian Airlines flight MH370 disappeared without a trace on March 8. Since then, despite the endless coverage of CNN, there has been absolutely no progress in uncovering any clues about the fate of the missing Boeing 777. Perhaps the following may provide some clarity on why.

On Thursday, for the first time, 7 minutes of audio recordings of the final conversations between pilots of the missing Malaysian jet and teams of air traffic controllers on the ground were released.

The recording is provided below.

There is one problem: the recordings were "edited" leading many to wonder if the entire conversation wasn't fabricated on a sound stage, and if so: why? And just what is the Malaysian government (either alone or in conjunction with other countries) hiding.

NBC has more:

Analysts who listened to the recordings for NBC News did not know why they were edited, but discovered at least four clear breaks in the audio that indicated edits.

"It's very strange," said audio-video forensic expert and registered investigator Ed Primeau of Primeau Forensics, who has analyzed hundreds of audio recordings. He said the beginning and end of the recording are high-quality with a low noise floor, meaning ambient background noise is almost silent, unlike the middle.

"At approximately 1:14 (a minute, 14 seconds into the audio, which can be heard here), the tone of the recording change to where to me, it sounds like someone is holding a digital recorder up to a speaker, so it's a microphone-to-speaker transfer of that information. That's a pretty big deal because it raises the first red flag about there possibly being some editing," he said.

The next part that raises questions is two minutes, six seconds in, through two minutes, nine seconds in, he said.

"I can hear noise in the room, along with the increase in the noise floor. I can hear a file door being closed, I can hear some papers being shuffled. so I'm further convinced that, beginning at 1:14 continuing through 2:06 to 2:15, it's a digital recorder being held up to a speaker."

Long gaps in the communication throughout the recording also imply some editing, he said.

"But yet, at 6:17, there's a huge edit because the conversation is cut off. It's interrupted. And the tone changes again," he said. "The noise floor, when you're authenticating a recording from a forensic perspective, is a very important part of the process. All of a sudden, we go back to the same quality and extremely low noise floor that we had at the beginning of the recording."

Kent Gibson, a forensic audio examiner with Forensic Audio in Los Angeles, added that there appear to be additional edits at 2:11 and 5:08, and agreed it sounded as though the middle section was recorded with a microphone near a speaker.

"You can hear, at 4:07, pages turning or a person breathing, which is unusual," he said.

While it's not uncommon for the background of a recording to change when a cockpit communication turns over from ground control to air controllers — which happened about four minutes into this recording — that doesn't explain the noises that are heard.

"It's not unusual that there would be clicks when they push the button on the microphone, but it's very unusual to have a disturbance. Normally you wouldn't have any background," Gibson said.

A cut-off word also isn't out of the realm of possibility, he said.

"It wouldn't be unthinkable to have a truncated word because if somebody let go of the trigger on the microphone, it might cut off their word," he said. "But it would be very unusual to find a background differential at the same time, suggesting that Malaysian authorities or whoever presented this made edits for whatever reason."

So why did the authorities fabricate the recording? Simple: the pilot said something the government did not want leaked:

Gibson said it’s possible the tapes could have been edited by Malaysian authorities "if the pilot dropped a hint that they didn't want to get out, if he said something that doesn't fit with the Malaysian government's party line."

But, he said, "It's more likely to be an inadvertent thing. But it's not the way to handle evidence."

The recording also could have come from different sources, he added.

"You can assume that the recording while they're still on the ground came from the tower and then you could assume that the communication with air controllers was while they're in the air," he said. "They may have just mishandled the cobbling of it together."

This doesn't necessarily prove anything about the investigation, he added. "Unfortunately, there are no smoking guns, except there are edits. And there are clear edits," he said.

So no smoking guns, except... there are smoking guns. "There's things that have to do with timelines and radar that they have available, but they don't make them available," said Tom Owen, a consultant for Owen Forensic Services audio analysis and chairman emeritus of the American Board of Recorded Evidence. "They wouldn't give you anything that would be enlightening for the public to any secretive information. I don't see that as a problematic issue."

Considering several hundred people are missing, presumed dead, purposefully covering up critical clues as to what happened is certainly a problematic issue, even if thanks to the government's botched up handling of the situation, it does impart a significant dose of morbid humor to the following advertisement from Malaysian Airlines.

Scarcity means opportunities in everything from pumps and plumbing to sewage treatment.

"A perfect storm is brewing, water is the 21st-century oil," wrote Bank of America Merrill Lynch in a 133-page report last month. BofA calls water scarcity a "global megatrend" and says "investors need to go blue." Credit the bank's conservation efforts; it has been recycling that report for a few years now. Returns for the theme have been just OK. The S&P Global Water index has returned 12.1% on average over the past three years, beating the 9.5% return for the broad S&P Global 1200, but falling short of the 13.9% return for the U.S.-focused Standard & Poor's 500 index.

The opportunity may indeed be more compelling than recent returns suggest. Water infrastructure is crumbling in the U.S., but municipalities have delayed spending to help balance their budgets. That has created enormous pent-up demand for pipes, pumps, and wastewater-treatment gear, and water main breaks are now occurring more frequently from San Francisco to Milwaukee to Springfield, Mass. In emerging markets, growing middle classes are consuming more water-intensive goods like meat, and clamoring for things Americans take for granted, like the ability to draw a clean glass of tap water.

The problem with theme investing, however, is that some key factors that drive stock returns have nothing to do with the themes. Chief among these is valuation; the price an investor pays is easily as important to long-term returns as what he buys. The S&P Global Water index recently traded at 23 times trailing earnings, versus 18 times for the S&P 500. Investors with a thirst for water exposure must be careful not to pay too much. Promising names include Rexnord (ticker: RXN), HD Supply Holdings (HDS), American Water Works (AWK), and two others below.

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Stuart Goldenberg for Barron's

Our blue planet holds plenty of water, but only 2.5% of it is fresh. The amount of fresh water has fallen 35% since 1970, as ground aquifers have been drawn down and wetlands have deteriorated. Meanwhile, demand for water-intensive agriculture and energy is soaring. Overall water demand is on pace to overshoot supply by 40% by 2030. Water scarcity will damp long-term economic growth unless governments spend more to recycle wastewater, turn salt water into fresh, and build smarter plumbing. BofA therefore expects companies that meet these needs to deliver outsize growth for many years.

BUT INVESTORS MUST PAY attention to other factors, too. For example, now is a good time for stock buyers to turn their attention from pumps to plumbing, says Matt Sheldon, manager of the Calvert Global Water fund (CFWAX), which has returned 12.9% a year over the past three years, ranking among the top 2% of natural-resources funds, according to Morningstar. A boom in hydraulic fracturing of oil and gas reserves over the past decade sent demand for pumps soaring, and provided outsize returns for companies like Flowserve (FLS). Its stock price has multiplied 10 times over the past 10 years. But growth there has slowed and shares look fully priced. Flowserve is expected to increase its revenue by less than 4% this year, and its shares go for 19 times this year's earnings forecast.

Meanwhile, a rebound in the U.S. housing market should drive improving results for companies that sell plumbing systems to builders and municipalities. Sheldon likes Rexnord, which makes valves, floodgates, backflow preventers, and other water products. Its revenues are expected to increase by 7% this fiscal year, which runs through March 2015. Its shares go for 16 times earnings.

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HD Supply, an 8% revenue-grower, sells a broad line of building and maintenance supplies, and is seeing particularly brisk growth from its waterworks division. The company, a former unit of Home Depot, went public and swung to a full-year profit last year. Shares go for 20 times this year's earnings forecast, but earnings are still ramping up quickly from a low base. The price/earnings ratio drops to 13 based on next year's forecast and to less than 10 based on 2016. Last August we wrote that shares were poised for 20% upside over the coming year (Aug. 12, "The Home Depot of Commercial Construction"). They're up 11% since then, on par with the S&P 500.

Utilities offer another way into water. American Water Works is the largest investor-owned water and wastewater utility in the U.S., with customers in 40 states. For utilities, aging water infrastructure represents not only a future cost, but a future profit. That's because regulators allow them to invest in infrastructure at handsome returns on equity, and in many states, if realized returns fall behind projected ones, utilities can top them up with customer surcharges. American Water Works is expected to increase its revenue by 7% this year, and shares sell for 19 times this year's earnings estimate. Janney Capital Markets cites the stock as a favorite utility in part because of the potential for stable and rising income. Shares yield 2.7% and management links its payout to earnings, which Janney predicts will grow 7% to 10% a year over the long term.

China represents a top opportunity for water investments in emerging markets, says BofA. In China, all those coal-fired power plants account for 20% of total water consumption, and that figure could rise to 40% over the next decade. Beijing Enterprises Holdings (392.Hong Kong) has a hand in water treatment and sewage, along with toll roads, beer, and gas pipelines. Its shares go for 18 times this year's earnings forecast. That looks inexpensive compared with its projected revenue growth of 16% this year and 21% next year.

EMERGING MARKETS STOCKS aren't the only way to invest in emerging markets, says Andreas Fruschki, manager of the AllianzGI Global Water fund, which ranks among the top 6% of natural resources funds for three-year performance, according to Morningstar. Fruschki's fund has only a 10% stake in companies based in the emerging markets; he prefers to invest in those markets through global companies that sell there. Danaher (DHR) was recently the fund's top holding. It's an acquisition-driven company that focuses on niche markets, and has a hand in water analysis and treatment, test equipment for electronics and medical research, and more. Revenue is expected to grow 5% this year. Danaher shares go for nearly 20 times this year's earnings forecast, but earnings understate the amount of cash the company generates because of charges related to past deals. Shares go for less than 17 times this year's projected free-cash flow.

- Among the other business tax breaks being considered are tax incentives to promote investment in start up companies. Angel investors, who currently get to deduct up to Y10M ($98K) from taxable income for startup investments, will be allowed to deduct several times as much.

The business environment is improving, and that could spur a wave of mergers and acquisitions.

After a few false dawns during Europe's prolonged downturn, mergers and acquisitions are making a comeback.

Conditions are coming together for a pickup in corporate activity. Business confidence is growing and credit is becoming readily available. Earnings show tentative signs of recovery, but low inflation—or deflation—means that managers need to find new ways to grow if they are to meet growth expectations. One solution is M&A.

That doesn't necessarily mean parting with slabs of cash. Some companies are being shrewd and swapping assets, like Novartis (ticker: NOVN.Switzerland) and GlaxoSmithKline (GSK). But others that hoarded cash during the recession now are pondering ways to spend it.

This time, the M&A rebound seems to be for real. From Jan. 1 through April 30, corporate deal making in Europe totaled more than $338 billion, according to Dealogic. That's the highest level since 2008, although still less than half the $682 billion in 2007, just before Lehman Brothers imploded and the euro-zone crisis blew up.

CURIOUSLY, THE TARGETS in the three biggest deals in Europe so far this year are French: cement maker Lafarge (LG.France) is mixing a $41 billion merger with Switzerland's Holcim (HOLN.Switzerland); Vivendi (VIV.France) is selling its telecommunications unit, SFR, to the Netherlands' Altice (ATC.Netherlands) for $24 billion; and General Electric (GE) is buying Alstom's (ALO.France) energy assets for $17 billion, unless the French government intervenes.

M&A activity is good news for equity valuations and can net huge windfalls for shareholders of targeted companies. French stocks are up 3.8% in 2014, outperforming European equities, which are up 2.9%. In contrast, German issues are flat.

The M&A tally could get a massive boost if Pfizer (PFE) succeeds with its bid for AstraZeneca (AZN.United Kingdom), maker of cholesterol treatment Crestor and ulcer drug Losec. Pfizer last week raised its initial offer by 7% to about $106 billion, or £50 ($69.33) a share in cash and stock. However, it may need to increase the cash component from just 32% to convince shareholders to do a deal. AstraZeneca's shares closed Friday £48.08, up 35% since the start of the year, so the upside now appears to be limited if a transaction is to get done.

A lot of buying power is in the hands of U.S. players. GE and Pfizer are among a slate of American companies with substantial assets overseas that likely would be heavily taxed if repatriated. It seems more prudent for those companies to invest those funds outside their home market–and acquisitions are the way to go.

Barclays reckons that U.S. corporations such as Apple (AAPL), Microsoft (MSFT), Procter & Gamble (PG), and PepsiCo (PEP) together have $974 billion in permanently reinvested overseas earnings. More than one-third of that amount is held by technology companies, but big chunks are also evident in health care, staples, and industrials.

EUROPE HAS A PLETHORA of candidates for M&A right now because it remains relatively cheap. That means it is difficult to pinpoint the most likely targets. Pfizer's interest in AstraZeneca has ignited speculation in other pharma stocks, including Shire (SHP.UK), UCB (UCB.Belgium), and Actelion (ATLN.Switzerland), which have attractive pipelines of new products or offer compelling synergies and cost savings.

Reckitt Benckiser (RB.UK) also could find itself the subject of takeover talk. Reckitt, which has a market value of about £35 billion, seemingly has missed out to GSK on Novartis' over-the-counter division and to Merck (MRK) in the race for Bayer's (BAYN.Germany) consumer-health business. That could be enough for predators to start circling. Reckitt boasts a stable of well-known brands from Cillit Bang to Lysol and earned net income of £1.74 billion on revenue of more than £10 billion last year. Its shares closed Friday at £48.40, or about 19 times forecast 2014 earnings.

In the telecom industry, Vodafone (VOD.United Kingdom) in the past six months has picked off cable operators Kabel Deutschland and Spain's Ono. Flush with cash from the sale of its Verizon Wireless stake, it could try to make deeper inroads into European markets by prying Italian provider Fastweb away from Swisscom (SCMN.Switzerland).

Vodafone's ambitions could precipitate responses from rivals. France's Orange (ORA.France) has long been expected to consolidate in Spain and analysts see the likelihood of a bid for Jazztel (JAZ.Spain). But Orange has indicated it is in no hurry and the 44%-run-up in Jazztel's share price this year seems to make a deal less likely, or at the very least reduces the chance of a fat premium.

In France, Bouygues (EN.France), jilted in the race to woo SFR, could seek another partner for its Bouygues Telecom business. Iliad (ILD.France) could be a suitor.

Cover story: India offers potential for investors, and though controversial, Narendra Modi, Indias likely new prime minister, is that nations best shot at an economic turnaround; To avoid problems, investors should focus on themes like infrastructure and Indias rising middle class (Positive on MINDX, EPI, INDY, Bajaj Auto, Gujarat Pipavav Port, ICICI Bank, IDFC, Mahindra & Mahindra, Shriram Transport Finance). 

- Features: 1) Cautious on SUNE: Company has turned around operations by shedding bad businesses and planning a public spinoff of semiconductor wafer factories, but much of the value of a publicly held subsidiary that would own its finished solar projects and pay out cash flow tax-free stems from subsidies, which could be short-lived; 2) Positive on RF: Stock has more than tripled since 2011, and could climb another 30%. Shares trade at just 90% of companys book value, versus an average of 130% for peers; 3) Cautious on AWK, Beijing Enterprises Holdings (392.HK), DHR, HDS, RXN: Companies offer exposure to the growing investment in water infrastructure and shares look cheap, but investors need to look carefully at their valuations and the logic behind them. 

- Tech Trader: Cautious on TWTR, YELP, LNKD, FB: Tiernan Ray says it remains hard for anyone to truly predict what the metrics bode for any company in any quarter in the tech sector, meaning the stocks will continue to be volatile; Recent report from S&P Capital IQ finds investor activism is good for stock prices, but meaningless for building a great business. 

- Trader: Despite the release of mostly positive economic data, particularly on Friday, traders say that escalating tensions in Ukraine are causing investors to hesitate; Positive on HTZ: Spin-off of equipment rental business, which will be known as HERC, should give both newly independent companies a boost; Positive on MUSA: Gasoline retail chain, spun off from MUR, is undervalued, and there are catalysts that could send the stock higher in the next year or so. 

- Small Caps: Positive on HSC: Leading global provider of services to steel makers has seen its turnaround stalled, but if new CEO Nick Grasberger can pull it off, the stock has a bright future. 

- Follow-Up: Negative on TWTR: Companys off-the-charts stock compensation should worry investors because it shows managements willingness to significantly dilute shareholders, which along with a high valuation and slowing growth make the stock one to avoid; Economists at Applied Global Macro Research believe that 4% annual growth in real GDP has already started in the current spring quarter. 

- Mutual Funds: Interview with John Rogers, Jr., portfolio manager, Ariel Fund (top ten holdings: KKR, LAZ, JLL, RCL, CBG, SLCA, WU, BRS, GCI, AXE); Interview with Douglas Chudy and David Dusenbury, portfolio managers, Dalton Greiner Hartman Maher, who say the market is moving in the right direction, presenting opportunities for investors (picks: RF, KS, INGR, ALL); 

- European Trader: Mergers and acquisitions are making a comeback in Europe, which has a large number of candidates because it remains relatively cheap (Positive on Shire, UCB, Actelion, Reckitt Benckiser, Fastweb, Jazztel, Bouygues); 

Big freeze hits Berkshire profits

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., speaks during a conversation with Brian Moynihan, president and chief executive officer of Bank of America Corp., not pictured, at Georgetown University in Washington, D.C., U.S., on Thursday, Sept. 19, 2013. Buffett compared the U.S. Federal Reserve to a hedge fund because of the central bank's ability to profit from bond purchases as it accumulated a balance sheet of more than $3 trillion. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Warren Buffett©Bloomberg

Warren Buffett’s Berkshire Hathaway became the latest company citing the terrible winter among the reasons for a decline in profits in the first quarter, in results released on the eve of its shareholder meeting.

Frigid conditions in the US Midwest caused delays and disruption in shipping cargo by rail, hurting Mr Buffett’s railroad subsidiary, Burlington Northern, the company said on Friday.

Taken together with a decline in profits at Berkshire’s historic reinsurance business and a negative change in the market value of derivatives contracts, it reported a 4 per cent slide in earnings per share.

That did not stop the company’s cash pile swelling by another $1bn to $49bn – giving Mr Buffett yet more firepower for the big acquisitions he says he is still hunting.

The question of whether Berkshire can still find investment opportunities big enough to significantly improve earnings will be on the agenda at Saturday’s annual meeting, where some 38,000 shareholders are expected to converge on the Centurylink Center in downtown Omaha.

Mr Buffett’s preferred measure of investment success for Berkshire, increase in book value, has lagged behind the S&P 500 for more than the past five years. However, it increased 2.6 per cent in the first quarter of the year, according to the latest results, compared to a 1.8 per cent rise in the S&P 500 including dividends.

Live from Omaha

Berkshire Hathaway shareholders are converging on Omaha, Nebraska, for the conglomerate’s annual meeting and the chance to hear from its legendary founder, Warren Buffett. Stephen Foley, the FT’s US investment correspondent, is there to capture the wit, wisdom and, sometimes, wackiness on display.

Click here

Burlington Northern, which Mr Buffett bought for $34bn in 2010, recorded net earnings in the quarter of $724m, down from $798m a year ago, but the company said it expected to rebound to post earnings growth for the year overall.

Partially offsetting the declines in Burlington Northern, the winter weather did boost Berkshire’s utility MidAmerican Energy, as heating demand drove up energy use.

In an interview on CNBC earlier in the day, Mr Buffett said he was not surprised by this week’s weaker-than-expected 0.1 per cent reading on first-quarter GDP in the US.

“We saw in January and February things fairly slow, which certainly in some cases was attributable to weather, in our own case . . . If you have two months out of the three where things really seem to be pretty stagnant, the three months aren’t going to be that good.”

He said the economy had picked up to its end-2013 pace since.

Berkshire’s insurance businesses, where results can be volatile, also recorded declines in the first quarter in both underwriting income and investment returns, while equity derivatives contracts subtracted $132m from earnings in the quarter after having contributed $1.2bn a year ago. Overall, Berkshire’s net income fell to $4.7bn, from $4.9bn a year ago.

Mr Buffett’s operating companies span railways, insurance, energy utilities, retailers, newspapers and diverse industrial businesses, and their growing value has helped spur a rally in Berkshire shares this year. Early on Friday they touched a new record high, but closed down 0.6 per cent at $192,255 per A share, valuing the company at $317bn. The results were released after the market close.

Will lightning strike twice for fund star Woodford?

It is a landmark moment in British fund management. One of the most successful managers of the last two decades, Neil Woodford, has this week launched a new investment company.

Mr Woodford takes the helm at the eponymous Woodford Investment Management after finally severing links with Invesco Perpetual, the Henley-based group he first joined in 1988.

The move should not be underplayed. Mr Woodford is a star of the fund management world. He has a big following among investors; as soon as he announced his intention to quit Invesco in October, financial advisers were inundated with requests to switch their money to his new fund.

He is also lauded as one of the few managers to be able to run billions of pounds while delivering top-quartile returns and a steady level of income. Over 25 years, his flagship high income fund delivered 2,365 per cent in cumulative returns or 23 times the money originally invested, according to Morningstar data.

Under his new venture, he will have about £4.5bn under his control at the outset. Few other individual fund managers could attract such large sums so quickly. He oversees about £3.7bn in segregated funds with wealth manager St James’s Place and his new income fund will have about £1bn in assets.

More money will almost certainly flow his way. But is he worth the star billing, and will he continue to deliver the market-beating returns that established his reputation as arguably the best UK fund manager of his generation?

It has been a long week for Mr Woodford, who officially left Invesco on Tuesday – the day after the company was hit with a £18.6m fine – one of the largest levied against a retail fund manager – for breaching investment limits and introducing leverage into funds, including those run by Mr Woodford, without sufficient disclosure.

Although financial advisers played down the significance of the fine, it still cast a shadow over Mr Woodford’s new venture.

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Pensions guidance, Woodford's new venture and frontier markets

Jo Cumbo explains why the government's pensions guidance guarantee is not quite what it seems. Also in the show, David Oakley talks about the prospects of Neil Woodford's new fund, and Jason Hollands of Bestinvest explains the performance of frontier markets

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In his first interview since his departure, however, the fund manager looks relaxed in a blue sports jacket and checked shirt and is clearly relieved that a difficult week is behind him.

“I am hugely excited by this opportunity. It’s been a frustrating 12 months as I just want to get going with the new business,” he says. “It took me a long time to make the decision to leave because I was aware of the impact it would have on my clients, but when I decided to leave early last year I wanted to move on.”

The company, which was given regulatory approval on Wednesday, plans to launch the equity income fund in June.

The key to his strategy is buying inexpensive, unloved stocks and holding them for the long term – ideally forever, or at the very least for five years. He stresses he will not use the opportunity to reinvent himself as a different sort of fund manager. “I am going to do what I have been doing for a very long time,” he says.

The stocks he will hold in the equity income fund will be similar to those in which he invested in his flagship high income and income funds at Invesco, such as pharmaceutical, tobacco and consumer goods groups.

Mr Woodford is also fiercely opposed to mega-acquisitions, arguing they do not offer long-term shareholder value. He has a large chunk of AstraZeneca shares through his St James’s Place funds: he insists the UK company should remain a “single entity” and fight off the approach from Pfizer.

“There is short-term profit for shareholders through a deal, but there is more value in this company in the long term as a single entity.”

He will keep his distance from the swirl of the City of London, establishing his headquarters in Oxford, a few miles further upriver from Invesco, with a 20-plus strong team based in the City’s business park in Cowley.

There will be four partners, including Mr Woodford, who will be head of investments. But Mr Woodford will not take the reins as chief executive of the firm; he wants to focus on managing money.

More video

The other three partners are Craig Newman, chief executive, and Nick Hamilton, chief operating officer, whom he poached from Invesco, and Richard Graham Catherwood (known as Gray) Smith, who will be in charge of compliance and the legal side of the business. The company expects to receive Financial Conduct Authority approval to trade in the next few weeks.

There has also been speculation that Mr Woodford’s departure, though well choreographed, was less than amicable as he took gardening leave in March, earlier than planned, and is said to have been unhappy with the red tape and bureaucracy that got in the way of fund management at Invesco.

As head of UK equities and a 25-year veteran at the company, he considered the flagship income funds in particular as his own. Friends say it was at a meeting last year with executives in Atlanta, Invesco’s US headquarters, that he decided to quit the group, when it was made clear to him that the funds were the company’s, not his. This was an important distinction for a man who was already feeling stifled at the group.

Mr Woodford would not be drawn on this, but says: “This will give me the chance to focus on what I love doing and this is fund management. You try not to get embroiled in the bureaucracy but it is difficult not to at a big organisation.”

The 54-year-old also relishes the chance to create something of his own, a company in his image that could leave a lasting legacy for his style of investing as some of the historic names in finance have done.

His first job will be to go on the road to meet financial advisers, fund managers and investors to talk through his plans, which will start out small with just one retail fund and the segregated mandates from St James’s Place.

Stars in their eyes

Robin van Persie PUKNEWS

Is there really such a phenomenon as a star fund manager, the financial equivalent of a creative or inspirational footballer who drives a team to new heights to produce sublime or outstanding performance?

In time, however, he wants to build a bigger organisation that will offer investors opportunities to invest in fixed income and credit and may even run global and emerging market funds. His plans are ambitious, with the longer-term aim of creating a large asset manager rather than a small boutique.

It is also an opportunity for Mr Woodford to start over again with a clean sheet, particularly as his performance at the end of his tenure at Invesco was starting to suffer, which some believe was due to his funds becoming so large.

However, Mr Woodford said he “fundamentally” disagreed with the claim about his fund size and believes it is possible to perform well when running a large pool of assets.

At the end of 2013, the high income and income funds at Invesco had a combined £23bn under management. This was roughly 10 times their size a decade before, when he achieved his best performance numbers, beating the market by as much as 80 percentage points over a five-year period.

Simon Evan-Cook, head of multi-assets at Premier Asset Management, says: “It boils down to a function of how much money he takes in the fund. If he limits it to a much smaller fund than he ran at Invesco in the region of £1bn, then I think he will do very well.”

Another key question investors have to consider is whether Mr Woodford’s success has been largely on the back of Invesco, or down to his personal skill and style. His successor as head of UK equity at Invesco, Mark Barnett, has outperformed him in recent years.

However, Mr Barnett, 10 years younger than Mr Woodford, has learnt from his former boss, developing a similar style in which he places a big emphasis on analysing the macro environment before selecting stocks that typically offer high dividends and potential for growth.

Invesco probably deserves some credit for Mr Woodford’s performance, but the group also benefited from him, not only in terms of attracting assets but also mentoring younger fund managers such as Mr Barnett and establishing a distinct process for investing. It was Mr Woodford who insisted the group remain in Henley, rather than move to London.

Is Invesco clients’ money safe? I’d say yes

Mark Barnett, who is taking over from Neil Woodford as the head of UK equity at Invesco Perpetual, Henley-on-thames.

Interview: Mark Barnett

Importantly, Hargreaves Lansdown, one of Europe’s biggest online investment platforms, is backing Mr Woodford. Financial advisers say this endorsement is worth millions in terms of retail investor money as Hargreaves is one of the most popular platforms with individual savers.

Mark Dampier, head of research at Hargreaves, says: “I have been a fan of Woodford for most of my career. He is genuinely a long-term investor. He is passionate about what he does and I am sure he will continue to deliver strong returns for savers.”

Others agree with Mr Dampier, although they are not rushing to back him straightaway. Mick Gilligan, head of research at Killik & Co, the wealth management group, says: “We like situations where somebody who has a proven record starts up again with a clean sheet of paper. Whether it is repeatable, we will have to wait and see. We are going to make a decision over the coming weeks on whether we will be advising clients to switch their money into his funds.”

Dennis Hall, financial adviser at Yellowtail Financial Planning, adds: “Woodford has a great record. He went off the boil towards the end. Is that indicative of long-term decline? You never know. But you should always back someone who is a winner, and I would say he is.”

However, some financial advisers caution against the hype. “Woodford has been a good manager,” says one adviser at a big City group. “But it depends when you bought his funds. If you were there at the start, then great. But if you bought five years ago, you would have lost money.”

Mr Woodford defends his performance. “I have underperformed over the past five years, although not over the past three. My style is to buy more risk-averse and lower volatility stocks and this does not work well in a strong bull market.

“Central bank money printing has lifted all boats, but that is coming to an end. I’m looking forward to a market driven more by fundamentals and earnings, where there is differentiation between stocks.”

He also plans to develop his interest further in small, often unquoted, biotech companies that have the potential to become the multinationals of the future. Significantly, he will be based near IP Group in Oxford, the university research body that has provided some of his best ideas and themes for investing in the life science sector.

“I have immense energy and enthusiasm for this job. The fund manager I most admire is Warren Buffett and he is still going at 83. I think I have the best years ahead of me and I plan to keep going as long as I can, delivering good, steady returns for my clients.”

Ian Read: the pragmatist out to transform the drugs industry

Appointed to bring stability, the Pfizer chief is exhibiting a taste for deals

Joe Cummings illustration of Ian Read

When Ian Read’s private jet landed in London on Tuesday after an overnight flight from New York he knew the next 48 hours could be the defining moment of his career.

The chief executive of Pfizer had crossed the Atlantic to press the case for the US drugmaker’s proposed £63bn takeover of AstraZeneca. If successful, the deal would create the world’s biggest pharmaceuticals group and represent the largest foreign takeover of a UK company.

As he was driven through the heavy London traffic, he received a warning of the challenge ahead. Pfizer had made public its interest in AstraZeneca the day before and the morning’s British newspapers were brimming with hostile commentary on the perceived threat to UK science and manufacturing.

This was the man, after all, whose first big decision after becoming chief executive in 2010 was to shut Pfizer’s research and development centre in Sandwich, Kent, with the loss of more than 2,000 jobs. He went on to reduce the company’s overall R&D budget by a third, saying resource allocation must always be based “on metrics” rather than “investing in hope”. Was this a person in whose hands Britain should entrust some of the crown jewels of its life-sciences sector?

“It is clear to me that this proposed takeover is going to deal a devastating blow to our profile in the pharmaceutical area, which I think is going to be critical in the next 30 years,” said Lord Sainsbury, the former science minister and billionaire scion of the eponymous supermarket chain.

For two days Mr Read criss-crossed Whitehall and the City trying to convince people that such fears were unfounded. Short, bald and bespectacled, the 60-year-old Mr Read sought to play up his British roots having been born in Scotland and studied chemical engineering and accountancy in London. However, he long ago adopted US citizenship and his accent betrays barely a hint of Caledonian influence. Perhaps more convincing was the presence at his side of two British executives and Pfizer’s Swedish head of science to reinforce his message that the UK and Europe would maintain a big presence in the merged group.

Yet, as he wooed Britons with the promise of a US-UK “science powerhouse”, many investors on the other side of the Atlantic were puzzled by a high-stakes gamble that seemed so out of character for a chief executive better known for cost-cutting than dealmaking.

Mr Read was drafted in to stabilise Pfizer four years ago after a period of disruptive deals, stagnant sales and dysfunctional management. He lacked the star power of his Harvard-educated predecessor, Jeff Kindler, but his no-nonsense character and under-the-bonnet knowledge of the business, the result of 36 years at the group, were just what the board wanted.

A year before, Pfizer had bought Wyeth, a rival drugmaker, for $68bn. It was the latest in a succession of large deals that greatly increased Pfizer’s scale but had done little for shareholder returns. The stock had fallen from a peak of $49 in 1999 to less than $13 in 2009, a period that coincided with more than $200bn worth of acquisitions.

It is clear to me that this proposed takeover is going to deal a devastating blow to [the UK’s] profile in the pharmaceutical area

- Lord Sainsbury, former science minister

Mr Read’s predecessors had hoped that doing deals would make up for Pfizer’s woeful record of innovation. The company was renowned for its powerful marketing machine, including a hard-charging sales force bristling with military veterans hired for their drive and discipline. Yet no amount of marketing could make up for the dearth of new medicines coming out of Pfizer’s laboratories.

Even Viagra, the anti-impotence pill and a rare Pfizer homegrown success, came about by accident. Scientists at Sandwich were developing an angina drug when male patients taking part in clinical trials reported that it had no effect on their heart condition but had a surprising effect on their sex lives.

The $112bn acquisition of Warner-Lambert in 2000 provided access to Lipitor, the cholesterol treatment which, in the hands of Pfizer’s salesmen, became the world’s first $10bn-a-year drug. However, the loss of its patent in 2011 once again exposed the lack of new products emerging from the company’s own pipeline. By then Mr Kindler had gone. His departure was attributed to exhaustion but there were also reports of infighting on the executive floor of Pfizer’s Manhattan headquarters, which one business magazine illustrator likened to a heap of writhing snakes. “There was a lot of internal politics,” recalls one executive, with palpable understatement.

Enter Mr Read, who joined Pfizer as an auditor in 1978 before working his way up through a variety of roles in Latin America and Europe. He had solidified his reputation as an astute operator while running the core pharmaceuticals business since 2006 and was popular with the board, counting the chairman as a golf partner. “He’s a pragmatist rather than a revolutionary and very straightforward,” says one person who has worked with him.

His decision, within two months of taking over, to close Sandwich sent a message that the days of shovelling endless resources into the company’s choked development pipeline were over. Deals also looked off the agenda, with Mr Read in 2012 declaring himself “very disinclined” to look “at any possibility of another mega-acquisition”. “I think that more and more of the value [of big deals] gets transferred to the seller and not the buyer,” he said, insisting that Pfizer had “all the science we need”.

Investors loved his brusque focus on shareholder value. The stock has doubled since he took over. Yet, while the Scottish accountant’s cost cuts have kept earnings on track, sales and innovation continue to disappoint, helping to explain why Pfizer is once again looking to buy growth and innovation from outside.

As he flew back across the Atlantic on Wednesday night to plot his next move in the takeover battle, Mr Read no longer looked so different from his dealmaking predecessors.