How do you solve a problem like Neil Woodford? When this ‘star’ fund manager set up his own investment house, many of us piled in, seeking the dazzling returns he’d delivered throughout much of his career.
His flagship Equity Income fund, launched in June 2014, at one stage held £10.1 billion of investors’ money.
But Woodford as a solo act has been disappointing. After an initial flourish, a run of bad news on key income-paying holdings brought howls from investors.
Shares in outsourcing group Capita halved in value at the end of January as it delivered a profit warning.
Provident Financial shares fell by 65 per cent in a day last August after two profit warnings, but Woodford is still a big investor — now holding almost a quarter of the loans company.
AstraZeneca suffered its largest ever one-day fall in July 2017, after the failure of a cancer drug trial, but has quickly bounced back.
Other shakes have come from the AA and Imperial Tobacco.
Woodford has come under intense media scrutiny. The fund, and the financial advisers who backed it, primarily attracted investors using Woodford’s name and reputation. On that basis, I feel the scrutiny is justified.
Woodford has a history of going through long poor periods when his chosen stocks are out of fashion — most memorably in the tech boom of the late 20th century.
But anyone who held his Invesco Perpetual High Income fund at the start of 2000 — as I did — would have seen their money double in the following six years. During that time, the technology bubble burst.
A FTSE All Share tracker — which blindly follows the stock market — held through those years would only just have broken even. So Woodford’s success was quite extraordinary.
But those glory years are a decade behind us. And the numbers since the 2008 banking crisis suggest that Woodford watchers might have done just as well following a FTSE tracker.
It’s been a tough time for equity income managers generally, as growth stocks, particularly mining and oils, have been in favour over shares renowned for paying large dividends.
However, competitors such as J O Hambro, Schroders, Newton, LF Miton, Artemis and Marlborough have left Woodford in the shade.
Brian Dennehy, a financial adviser at FundExpert, compiled figures showing that in its first four years, Woodford Equity Income has returned 23.2 per cent, compared with 33 per cent for the average equity income fund.
Over the 12 months to the start of June, it fell 9.76 per cent, while the equity income sector as a whole was up 6.69 per cent and the FTSE 100 Index is up 9.32 per cent.
Incidentally, because its income is too low, Woodford Equity Income has been moved to the UK All Companies fund sector — but I think we should compare it with what it says it does, which is provide attractive income.
Last year, Dennehy suggested that clients choose Schroder Income or J O Hambro UK Equity Income. Since then, Woodford’s fund has lagged these by 27 per cent and 26 per cent respectively.
Ben Yearsley, a director at the investment firm Shore Financial, sold the fund after becoming concerned at the amount of unquoted shares it was holding.
These peaked at 9.69 per cent in January, according to the Financial Times, very close to the maximum 10 per cent allowed.
Crucially, such shares are not as easily traded and investors can end up with a raw deal if they have to sell quickly.
Yearsley does say that he thinks Woodford is right on the economy — his view is that everyone is too gloomy about Brexit — and ‘there is a lot of value in his portfolio’.
‘If I was buying one equity income fund, I wouldn’t buy Woodford. But if you have three or four in your portfolio, on that basis, his could be one of them.’
Darius McDermott, managing director of Chelsea Financial Services, is a Woodford backer. ‘One thing we know is that after periods of underperformance, Neil has tended to come back very strongly,’ he says.
‘Woodford’s view is contrarian in a world where UK stocks are out of favour. So, if you are very nervous about the post-Brexit world, then perhaps you do not want to be holding this fund.’
Personally, with a heavy heart, I’ve sold — I had invested with Woodford almost since my first £50 monthly regular savings.
I hold Marlborough Multi Cap Income, Newton Global Income and LF Miton UK Multi Cap Income, all of which have beaten Woodford’s fund over one and three years. I have kept the ex-Woodford money in cash ready to top up if the market falls.
John Chatfeild-Roberts, who runs Jupiter’s Merlin funds, recently told investing website Citywire that, despite selling the fund, he would ‘absolutely’ invest in it again.
‘I think it’s all about where the market is and whether you are fighting it,’ he said. ‘We’d have to think the market is coming round to his way of thinking.’
My thoughts exactly.