The week just gone will be one to forget for Neil Woodford as he suspended his Income fund because investors were withdrawing their money at such a fast rate. It’s not a great state of affairs for investors, for the UK investing industry or for Woodford himself, especially as his fund was often heavily promoted by platforms and in the media and he was often seen as Britain’s most successful investor. However, despite that gloomy note, there are many companies with plenty to offer investors who want to make their own decisions and here are two I think are better than any fund.
Making a splash
The new CEO of Aviva (LSE: AV) has not been afraid of undoing the legacy of his predecessor. There have been several changes at the top of the insurer and the news last week showed the new man has the stomach for more change as he took the axe to around 1,800 jobs.
Chief executive Maurice Tulloch, who started in his role in March this year, plans to split the business into two, part of a vow he made to “crack down on complexity” that has dragged on the insurer’s share price. The split will separate Aviva’s core UK business — general insurance and life insurance — reversing a decision in 2017 made by predecessor Mark Wilson to run the two together to encourage cross-selling to customers.
Given the plans for radical change that could drive significant value for shareholders, the shares look to be cheap and they already provide a generous income too. The P/E of the shares is under 11 which represents good value and the dividend yield is around 7.2%, way above the average for the FTSE 100. This combination is enticing to me on its own, but when added to the potential for Aviva to become leaner and more profitable, I think it makes the shares look more tempting right now.
Safe as houses?
Housebuilder Persimmon (LSE: PSN) has thankfully been out of the news recently, ever since parting with its old chief executive who was paid £75m under a controversial bonus scheme that ultimately led to his exit. Putting the issue of executive pay to one side however, the business has a number of attractions from an investor’s point of view.
For one, there is the increased selling price of Persimmon’s homes, up £190,533 in 2014 to £215,563 in 2018. Of course, this has also helped revenue and profits rise as well. The return on capital employed (ROCE) is pretty good too, as you might expect from a high-margin business such as housebuilding. In 2018, its ROCE was a massive 52.8%. A high ROCE indicates that a larger chunk of profits can be invested back into the company for the benefit of shareholders.
In terms of growth, it has all been good news for a number of years. But not everything is rosy. Complaints over Persimmon’s workmanship, negative publicity around executive pay, and fears around the eventual end of the Help to Buy scheme (which massively helps the firm as it doesn’t target the luxury end of the market) have driven the share price lower. But with the shares looking cheap on a P/E ratio of under eight and with a stunning dividend yield of over 11%, it seems those fears are already priced in. I’d rather buy Persimmon than an investment fund.
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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019