Neil Woodford has said “sorry” to investors who have lost money in his funds this year, but confirmed he is sticking to his view that the consensus view of the world is wrong.
Mr Woodford’s £10bn Woodford Equity Income fund has lost 1.5 per cent over the past year, with most of the underperformance coming in the past six months.
He said: “I'm very disappointed with the short-term performance and have been criticised for it. And I think I'm right to be criticised. And I'm very sorry for the poor performance that we've delivered really now since 2016.”
Mr Woodford said that the performance of the FTSE 100 this year has been driven by a tiny number of stocks, with eight shares delivering 50.5 per cent of FTSE All Share index performance or 4.15 per cent in total return terms year to date.
I worry that the story that the market is chasing at the moment is dangerous. And that's why I haven't wanted to play that story.Neil WoodfordHe said: “I think it's tempting to think, well, maybe the underperformance is a product of these sort of company specific problems.
"And certainly, they've not helped.When I think about what's happening in the stock market, more broadly, and what's happening in the portfolio, the underperformance is a product much more of the rather odd characteristics of this bull run in the stock market.
"It is a very narrowly led market. The stock market seems to want to bid up the prices of stocks that I've talked about before, which provide exposure essentially to Chinese credit growth.
“In very simple terms, the stock market has decided that Asia, China is good and the UK is bad. It sounds very simple. And maybe it is an oversimplification. But I see that preference playing out in the stock market daily.”
He said policy makers in China are boosting short-term credit growth in order to achieve a strong GDP growth number to secure their own positions of authority in the country.
This has, boosted, he thinks, the performance of mining stocks, among others.
“When I talk about the market, I'm talking about a consensus view. The consensus is playing out by bidding up stocks that give exposure to this sort of Asian and China credit growth story and exiting out of anything really that doesn't deliver that.
"And of course, parts of the market that don't deliver are the bits of the market where I'm seeing a lot of value - so domestic economic cyclicals, healthcare and indeed, small early stage portfolio.”
He added: “None of those parts of the market provide any exposure to this one dimensional story that the market really loves.
"I worry that the story that the market is chasing at the moment is dangerous. And that's why I haven't wanted to play that story.”
Mr Woodford said the market has “got the wrong end of the stick” on the UK economy, which he believes is performing much better than expected.
He said the consensus view has been wrong many times in his career but being against the consensus “is a painful place to be.”
He said: “And all the temptation is to move away from that and to soften that and to go and do what everybody else is doing - buy more miners, sell the UK cyclicals, and just hide in the group where everybody else is investing."
Mr Woodford pointed to economist John Maynard Keynes saying it is often better to fail conventionally than to succeed unconventionally.
He said at times like this he remembers those words, because the pressure is relentless to do what everybody else is doing.
One of the criticisms levelled at Mr Woodford is that he is forced by the size of the portfolios he runs, to take much larger holdings in companies than is prudent.
The fund manager said: “For 30 years now, I have been running money in a very active way. I have never been a closet index manager.
"I've always taken strong views about where value is in the stock market. And I have for all of that period been taking big stakes in small companies and big stakes in big companies. And I'm very happy to do that.
"My career has been built on taking big bets in businesses that have been profoundly undervalued. I think it is entirely appropriate and entirely consistent with what we say we do.
"Clearly, lots of active managers who have closet index portfolios will be quite happy to have very small stakes in businesses. But that isn't how I run money. That has never been how I have run money. And it will always be a characteristic of what I do going forward.”
Adrian Lowcock, investment director at Architas, said he is sticking with Mr Woodford.
He said: “We should remember that no managers are infallible and not every idea will be right, even exceptional managers get it wrong sometimes.
"It is how they deal with the new information that matters and Woodford does not panic, he thoroughly researches his investments and knows the holdings extremely well which means when new information is received he can keep perspective and adjust his view accordingly.”
david.thorpe@ft.com
