Equity IncomeAug 24 2017

Fund buyers uneasy over latest Woodford drama

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Fund buyers uneasy over latest Woodford drama
ByTaha Lokhandwala

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."