When news of Woodford’s departure from Invesco Perpetual reached us back in 2013, we wasted no time in highlighting some great alternatives to his funds. When he went on to expand his new stable to include the Woodford Patient Capital Trust in 2015, we again were quick to point out proven alternatives. Here we review those selections. How did our process stack up against the “cult of the fund manager”?
We don’t want to blow our own trumpet but it’s good to see that an investment-specialist adviser can add considerable value when they apply a rational process.
They aren’t based on the fund manager paying us for the rating, nor taking us out for long lunches. It’s not fund recommendation by proclaiming "because I'm an expert".
There is no scope for our ratings to be skewed by fund managers with a good story or a big marketing budget.
Our Income fund choices
When Woodford left Invesco Perpetual and launched his first fund – Woodford Equity Income – we reviewed his performance and highlighted other UK equity income funds as proven alternatives to his flagship fund at Invesco and the new launch.
In May 2014 we said:
“There are some urban myths around the Woodford track record. His Invesco Perpetual funds were outstanding, but so are a good number of others…
Over the last 10 years the IP Income fund was a top performer compared to other equity income funds… But over 5 years the fund is placed 33rd. Hmmm.
If you broaden out the comparison to include growth funds, over 10 years it is 17th, and over the last 5 years it is 123rd. Ouch…
Our view is that buying new launches is mostly pointless unless the fund is unique, for example providing access to an asset class or strategy not available elsewhere – this fund doesn’t meet either of those criteria. So, we would wait at least 6 months before considering the fund, and then begin to compare the actual performance with the many alternatives.
In the meantime, there are plenty of outstanding alternatives, in fact 122 better funds if you are investing for growth (based on the last 5 years of performance).
Will YOU Buy This New Fund?
Despite these reservations of ours, many Woodford fans will buy the fund, plus a phalanx of others seduced by a shiny new fund and compelling marketing, but little else of relevance to whether this is likely to be a good, bad, or indifferent investment. That will be enough to make this one of the biggest fund launches ever.
The Cult of The Fund Manager remains intact, even if very silly.”
Our fund choices from 2014 are shown below, including performance over the period:
- Artemis Income (up 39%)
- Schroder Income (up 33%)
- JOHCM UK Equity Income (up 32%)
They all outperformed the sector average (28.8%). Over that period, Woodford’s fund was down 16.9%.
In 2015, Woodford’s fund did well but this was the exception - it’s easy to do well with a new fund and a lot of cash. In subsequent years he underperformed our selections significantly.
Our Growth fund choices
Woodford Patient Capital Trust (WPCT) followed a similar pattern.
“the trust is expected to be dominated by listed mid and large mature companies offering growth opportunities.
Can you do this now for yourself? With existing funds? We think so.
- Schroder Recovery, a pure Value fund
- Liontrust UK Small Companies, a very dynamic fund of its kind with 40% in tech companies
These two outstanding funds appear to more than adequately cover the ground which the new Woodford fund is hoping to exploit. And both have established track records, which hugely outperformed the prior Woodford fund.”
Our choices are shown below, along with performance from 2015 to 2019:
- Liontrust UK Small Companies (up 85%)
- Schroder Recovery (up 17%)
Over that period, WPCT was down 67.4%%.
Our long-time favourite – Liontrust UK Smaller Companies – was up 152% more than WPCT.
Schroder Recovery has struggled, along with Value investing as whole, but the fund still outperformed WPCT by a wide margin.
Even in the period before WPCT started to fall sharply, the Liontrust fund was up 62% while WPCT was down 18% (April 2015-December 2018).
Stick To Your Process
Investors following a rational process to select funds wouldn’t have invested in Neil Woodford’s new funds. If you were looking for Growth or Income there were better alternatives.
Remember, fund managers are not charities. As I said in Clueless:
“Fund management companies are businesses set up to make profits for shareholders, just like any other. And it has privately been illustrated to me on a number of occasions that the most profitable fund businesses are NOT those with the most successful funds. The most profitable fund businesses are those with the biggest marketing budgets.
Big marketing budgets, telling good stories, and pressing the right consumer buttons will attract the largest inflows of funds from investors – the performance of underlying funds is secondary (notwithstanding pressures to perform, as mentioned earlier).
Potential investors are suckers for a good story! The best marketing directors know that.”
ACTION FOR INVESTORS
- Don’t buy stories
- Don’t worship fund managers
- Follow a rational process backed up by evidence