Woodford investors lack courage of his convictions

Woodford investors lack courage of his convictions

Neil Woodford's dogmatic commitment to his view on the UK economy is one of the reasons his fund has shrunk in size by £2bn over the past year.

His flagship Woodford Equity Income fund has shrunk from £10.1bn in March 2017 to £8.2bn on 4 December.

Mr Woodford has concentrated the investments in his fund around the premise that the UK economy will do better than expected in the coming years, and the global economy will do slightly worse.

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This has led him to take significant stakes in UK banks, consumer stocks and house builders.

The Office for Budget Responsibility (OBR) revised downwards its outlook for UK GDP growth. It now expects the economy to grow by 1.5 per cent this year and next, having previously forecast 2 per cent growth for this year.

Mr Woodford said the the OBR have been wrong in their forecasts in recent years, and he expects they are wrong now.  

Such contrarianism has proved costly for investors in the fund. The CF Woodford Equity Income fund has returned 2.4 per cent over the past year to 4 December, compared with 12 per cent for the average fund in the IA UK Equity Income sector in the same time period.

The fund manager said he wants to be judged on a three to five-year time horizon.

The latest significant withdrawal from the funds was a £25m redemption from Architas, which happened in September.

Nathan Sweeney, investment manager at Architas, said he expects a “choppy outlook” for UK equities and has concentrated his UK exposure into a smaller number of funds he thinks can have the flexibility to both capitalise on opportunities and protect investors from downside.

In his own defence Mr Woodford has said active fund managers should always take views that are different from the consensus.

He said fund managers who do not do this, but charge active fees are “earning an economic rent {pay packet} they do not deserve”.

He said it is the same approach he has used throughout his career.

Philip Milton, who runs Philip Milton and Co., an adviser firm in Devon, said he tends to avoid very big funds such as Mr Woodford's because they are inherently unable to invest in a flexible way as they have to take big stakes in companies, reducing the level of diversification it is possible to achieve.

But Laith Khalaf, senior analyst at Hargreaves Lansdown, said he is happy for Mr Woodford's funds to be on his company's Wealth 150 list of favourite funds.

He said: "While he has repositioned the portfolio towards UK domestic cyclical stocks, that is not the only potential driver of returns in the portfolio.

"The two biggest stocks in the Equity Income fund are AstraZeneca and Imperial Brands, neither of which are reliant on the UK domestic economy to perform.

"Likewise performance of many of the smaller companies will depend more heavily on company specific developments rather than the big macro picture. Neil Woodford has taken relatively punchy positions in Lloyds and Legal & General, but he is a high conviction manager, and that approach has served investors well in the past.”