Star portfolio manager Neil Woodford would be forgiven for thinking his decision to leave his role at fund house Invesco Perpetual to go it alone has been vindicated.
The Woodford Equity Income fund, which raised a record-breaking £1.6bn when it launched back in June 2014, has reached another milestone in achieving the £10bn mark.
To put this into context, the Invesco Perpetual Income fund, which he managed at the four investment firm before Mark Barnett took up the reins, is just over £5.6bn in size (as at 28 March 2017).
It should be noted the amount of money that left the Invesco Perpetual Income fund reached £2bn in the months after Mr Woodford handed his notice in on October 2013 up until February 2014, according to FE Analytics.
Buying into the manager
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “As with any fund manager who has been successful, people have put money in the [Woodford Equity Income] fund because of who he is. When he moved, investors moved with him. Many people do not buy into a fund, they buy into a manager.”
But, like many other active managers, Mr Woodford struggled to outperform passive equivalents.
However, investors have poured money into Woodford’s flagship fund despite the fact that it lagged behind the FTSE All Share benchmark – returning 3.4 per cent compared to the index’s 16.8 per cent over the same period.
In a blog post on the investment house’s website, Mr Woodford pointed to detachment between share prices and fundamentals for the disappointing performance.
He added it was momentum, not valuations, that pushed up share prices last year – with the rally largely driven by commodities.
However, the fund, which invests primarily in UK-listed companies with the aim of providing a reasonable level of income and capital growth, is one of the top performers of the Investment Association UK Equity Income sector.
Since launch, the investment product has returned 33.80 per cent to 29 March 2017, compared to the 20.11 per cent achieved by the sector, according to FE Analytics data.
Jason Broomer, head of investment at Square Mile, said: “Woodford tends to invest over a longer time horizon [compared to his peers]. He also tends to hold good size positions in companies and actively works with management.
“He is not a big investor of resources, which is a punt on what will happen to oil and copper prices. A lack of exposure in this area is what hurt his portfolio last year.”
Mr Woodford has been turning heads since the stellar performance he achieved in his Invesco Perpetual days, where he managed a host of funds in his 26-year tenure with the firm.
His most notable achievement was the Invesco Perpetual High Income fund, which was the best-performing fund in the equity income sector under his management, turning a £10,000 investment into £230,000 over 25 years, according to Hargreaves Lansdown.
HL analysis also shows that, on average, Mr Woodford captured 94.8 per cent of the gains in months in which the UK market has risen, but only 68.4 per cent of the downside in months when the market has fallen.
Mr Woodford has won plaudits over the years for conviction in his investment approaches, which have sometimes been contrarian.
Fee disclosure
Famously, his stance to technology stocks during the dotcom boom in the late 1990s was validated when the bubble burst in the early 2000s.
Mr Khalaf said: “Woodford has built up a lot of trust among investors because he has made big calls that have, on occasion, been at odds with the market sentiment.
“The most obvious example is his stance during the tech boom, but also during the global financial crisis. He did not hold banking stocks leading up to the financial crash, which hurt him and his investors in the short term. But ultimately, his decision was vindicated.”
With the cost of funds under increasing scrutiny, Woodford Equity Income levies an ongoing charge figure of 0.75 per cent. According to Mr Khalaf, that is cheaper than the bulk of the market.
His stance on fee disclosure, which prompted Woodford Investment Management to post a breakdown of charges on its website on a monthly basis, is one that endears him to investors, Mr Khalaf added.
He said: “Given his reputation, you might expect him to charge more than the average fund for access to his skillset, but the fund is available at a very competitive price.”
The swelling in the size of Woodford Equity Income is among a string of funding successes for Mr Woodford.
The prospectus of his second proposition, Woodford Patient Capital Trust investing predominantly in quoted and unquoted UK companies, set the share capital raising at £200m. It ultimately raised the share capital to £500m then £800m as the closed-ended fund’s issue was oversubscribed.
Woodford’s latest offering, a second income fund called Woodford Income Focus, which will have a UK focus, but will not have any geographical constraints, is likely to prove popular with investors, according to Mr Broomer.
He said: “Woodford has generated impressive performance over rolling five-year periods in the funds that he has managed, but investors should always remember that past performance is only a part of the picture.
“A portion of the existing income invests in unquoted stocks, but the new income fund will concentrate more on income-generating wealthy businesses that have been around for years and will continue to generate decent cashflow.”
Myron Jobson is features writer of Financial Adviser
Key points
The Woodford Equity Income fund has reached a milestone, achieving the £10bn mark.
Since launch, the investment product has returned 33.80 per cent to 29 March 2017.
Invesco Perpetual High Income fund was the best-performing fund in the equity income sector under his management.
