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Woodford 5th anniversary

Posted by: Sam Lees
It is the 5th anniversary of the launch of Neil Woodford’s inaugural fund, Woodford Equity Income.  He has struggled to avoid the headlines in recent months, for all the wrong reasons. Here we look at the fund’s record and what action investors should take.
 
Neil Woodford left Invesco Perpetual in 2013 and now manages 3 funds under the Woodford brand:
  • Equity Income,
  • Patient Capital, and
  • Income Focus
...as well as ones for Omnis Investments and the wealth manager St. James’s Place. 
 
His loyal following pumped up the Equity Income fund size, which peaked at around £10.3bn in 2017.  Since then it has fallen nearly 2/3 to around £3.7bn, and the withdrawals over the last month alone have caught the headlines in recent days.
 
How has the fund fared over the last 5 years? Here are some facts:
  • Since 19 June 2014 the fund is up just 1.16%.
  • This lags the UK Equity Income sector average by 25%.  See table 1 below.  
  • His old Invesco funds are lagging but on a smaller scale.
After a good start Woodford Equity Income started to struggle in 2016/17. Over the last 12 months his underperformance is notable…
  • Woodford Equity income is down 18.4%
  • In comparison, the UK Equity Income sector is down 4.73% and the FTSE 100 index is down 1.74%
  • This means Woodford Equity Income has underperformed the sector average by over 13%...
  • …and the FTSE 100 index by over 16%.
Funds flowing out
 
Money has been leaving the fund consistently for nearly 2 years (23 consecutive months).  Much of the recent headlines have focussed on the “unquoted” portion of his portfolios – those investments he has made that are not into public companies. 
 
Fund managers can only hold 10% of their assets in these private companies. Therefore, as withdrawals persisted, he mostly sold his quoted stocks, meaning the proportion of the fund invested in unquoted companies has risen.
 
But it isn’t just his unquoted holdings that investors should be concerned about. His quoted stocks are also letting him down. He manages SJP UK High Income for St James’s Place, which is like Woodford Equity Income but without the unquoted holdings. Over the last month this has actually performed worse than Woodford Equity Income (down 8.83% vs. 8.10% for Woodford Equity Income). 
 
Against our original 2014 recommendations? Even worse.
 
The funds we recommended as our preferred alternatives when he launched this fund 5 years ago were Schroder Income and JOHCM UK Equity Income.  With income reinvested, those funds are up 33% and 27% since June 2014.  Woodford’s fund is up just 1.16% (chart 1). And both funds have a good record of increasing their payouts to investors consistently, something we value in an equity income fund (see more on that here).
 
The fund has struggled for 3 years now, and there are much better opportunities for income or growth investors elsewhere.  Don’t let fund manager loyalty blind you to the better opportunities out there.
 
FURTHER READING
 
 
Table 1: Total Return Performance (19 June 2014 – 28 May 2019)
 
Performance %
FTSE 100
29.77
IA UK Equity Income sector
26.69
Invesco Income
14.63
Invesco High Income
14.54
LF Woodford Equity Income
1.16
 
Chart 1: Total Return Performance – Woodford Equity Income vs. our alternatives (19 June 2014 – 28 May 2019)
Topic: Fund analysis


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