Woodford Investment Management yesterday (8 June) revealed it was weighing up whether to launch an open-ended fund which invests in listed stocks not limited to the UK. Around 85 per cent of the holdings are expected to pay dividends.
The fund would be the third launch since Woodford branched away from asset manager Invesco to create his own investment management firm in March 2014.
However, investment advisers are split on whether they would invest in the proposed fund at this point in time.
Alan Steel, founder of Alan Steel Asset Management, questioned why Mr Woodford was planning to launch a High Income fund now, but pointed to the manager’s launch of the successful Invesco fund in the late 80s, and said people thought that was a “daft time” to launch .
“He obviously sees a gap in the market; it’s an area where he has expertise, and maybe he sees a demographic demand with Baby Boomers heading for long retirements.
“We’d support it once we confirmed what we suspect is his rationale.”
“I am concerned that Mr Woodford might be spreading his expertise too thinly in his quest for funds under management.” Gordon BowdenGordon Bowden, director for Buckinghamshire-based Quainton Hills Financial Planning, said he suspected Mr Woodford was proposing a higher income fund because of the difficulties investors are having trying to obtain yield on their investments.
He said, however, he would not recommend the fund at this time.
The challenge will be whether the fund can find suitable companies that can pay that level of sustainable yield, without too much risk to capital values, adding: “At the moment the consistent dividend paying companies are at quite a premium because of the race for yield.
“I would want to see a reasonable level of track record and I am concerned that Neil might be spreading his expertise too thinly in his quest for funds under management.”
Adrian Lowcock, head of investing at Axa Wealth, said any new high income fund would need to be “significantly different” to Neil Woodford’s existing income fund to add value.
“Woodford is an excellent manager and has proven successful at delivering returns for investors, but he does so without the constraints of chasing yield for yield’s sake.
“A fund with a significantly higher yield will be more restricted and might not deliver the same long-term performance we have come to expect from Neil Woodford.
Mr Lowcock said the income yield on Invesco’s high income fund “struggled to live up to its name”, and argued on many occasions was actually lower than the income fund, adding the new fund would need to honour the high income name and the fund objectives.
Ben Seager-Scott, director of investment strategy at Tilney Bestinvest, said he thought this was an “understandable move” for Woodford, particularly with the search for income being a major theme in the era of ultra-low interest rates.
“With no end in sight there’s every reason to think demand will remain strong for these kind of products,” he said, adding the income and high income strategies proved a successful strategy at Mr Woodford’s “old shop”.
“One thing to bear in mind when you’re investing for income is that, in some ways, you’re constraining your manager by requiring an income, whereas in a go-anywhere UK equity fund the manager can look for returns from any part of the market.
“There’s also the well-known issue of dividends being relatively concentrated in the UK, presumably one reason Woodford IM are specifically looking to be able to hunt overseas.
Despite saying he holds Mr Woodford in very high regard, Mr Seager-Scott said it would depend on the details as to whether he would buy the fund.
Darius McDermott managing director of Chelsea Financial Services, said the fund would be a “natural extension” to his existing products, and will mean he is “freed from the overseas restriction”, giving him greater flexibility.
“I think this is demand-driven; it’s likely some of the investors wanted access to Neil’s expertise investing in large cap companies, without the unquoted growth stocks.”
katherine.denham@ft.com
