Fund buyers and raters have expressed concern after Neil Woodford found himself on the wrong side of another share price slump this week.
Doorstep lender Provident Financial tumbled 65 per cent on Tuesday (August 22), its second profit warning in two months being accompanied by the news of a cancelled interim dividend, an FCA investigation into its practices, and the departure of its CEO.
Mr Woodford held 4 per cent of his flagship Income fund in Provident as of the end of July, and his portfolio dropped by more than 3 per cent on the day, according to figures from FE Analytics. It follows smaller but significant falls for other major holdings over the summer, chief among them AstraZeneca, Imperial Brands, Allied Minds and the AA.
The drops have pushed Woodford Equity Income to the bottom of the UK Equity Income sector over one year, losing 2.5 per cent over the period compared with a 10 per cent gain for the typical fund in the sector.
Mr Woodford remains second quartile over three years, but the Provident episode has left questions for some fund buyers over the manager's preference for taking large positions in individual stocks.
Jim Wood-Smith, chief investment officer at Hawksmoor, said the firm was "wrestling" with the notion that Mr Woodford's recent performance and stock-specific issues were no longer a matter of bad luck.
"Too many fingers in too many pies? A manager as genuinely good as Mr Woodford shouldn’t get caught out by a change as big as [Provident]," Mr Wood-Smith said.
He added: "Mr Woodford owns around 20 per cent [of the company]. That is a heck of a bet, even for a mega-fund, on a business that has known regulatory issues."
Mr Woodford said he retained confidence in Provident following both its initial profit warning in June 20 and its second this week. He predicted the firm was still on track to deliver £300m in pre-tax profit in 2019.
Wellian chief investment officer Richard Philbin also raised the issue of position size, but continued to back the manager.
"I think the big issue is all around the weight applied to the stock, rather than necessarily the amount of stocks that blow-up.
"This is not the first time Neil has had a poor period in terms of performance, he didn't play the tech boom very well and was under the spotlight a great deal then too.
"If you know what you are buying, understand the thinking and logic behind the approach and the time period the assets are designed to achieve their objectives, then fine."
Provident Financial's 7 per cent dividend yield made it a prime candidate for Mr Woodford's backing, according to one fund buyer who wished to remain anonymous. The manager employs an income and growth strategy in his £9.2bn Equity Income vehicle, including small-cap exposure that does not provide income. This has meant he has relied more on larger dividend payers to secure income for investors.
An August 23 blog by Woodford Investment Management's Mitchell Fraser-Jones said Mr Woodford's philosophy remained about company fundamentals and not market reactions.
"It’s a hypothesis that we continually put to the test, questioning whether the businesses we are invested in are performing as we’d expect from a fundamental point of view, not a share price view," he said.
Rory Maguire, managing director at ratings agency Fundhouse, said Mr Woodford's strategy of owning large stakes meant he would not have been able to ditch Provident Financial even if he wanted to.
"Assuming they wanted to sell, the challenge is that by owning 5 per cent in the fund, clients own around 19 per cent of Provident so it is very hard to sell without moving markets," he said.
But Mr Maguire, alongside Mr Philbin, said the manager's track record continued to stand him in good stead.
"We would be inclined to say that clients should reference the past with them and that [some] dud ideas are by no means indicative of a broken process," Mr Maguire added.
Hargreaves Lansdown, the direct-to-consumer platform that ranks Mr Woodford's fund on its Wealth 150 buy list and whose clients have long been backers of the manager, said it continued to support him.
"Skill can only be brought to bear over the long term. It isn't a positive bit for Neil Woodford but you do need to take a step back," senior analyst Laith Khalaf said.
