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Woodford in-depth: Can he bounce back again?

Woodford in-depth: Can he bounce back again?

The numbers don’t make for pleasant reading: Neil Woodford’s flagship Equity Income fund is down 11.7 per cent over the past 12 months, and 8.6 per cent this year alone, according to FE. He’s bottom of his sector over three years, some 14 percentage points behind the average fund.

The current slump has, at least, got the contrarian investor antennae twitching.

 “He’s always either the star manager who can do no wrong or he’s out of favour and everyone’s questioning him,” says Andrew Gilbert, an investment manager at Parmenion.

 “We are monitoring the Income fund very closely”, says Ben Conway, a senior fund manager at Hawksmoor Investment Management, which does not own the portfolio.

The issue is that other buyers have held the fund all the way down. Some have decided to crystallise those losses – Woodford Equity Income is shedding around £200m a month due to its performance struggles – but plenty remain committed. 

The question for those holders, as for Mr Conway, is whether there is light at the end of the tunnel. There is also an additional problem this time: issues with unquoted investments.

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Selling listed stocks to meet redemptions, at a time when unquoted holdings already account for more than 9 per cent of the portfolio, means a battle to stay under the 10 per cent regulatory limit on these illiquid stocks.

Mr Woodford says he is comfortable with the position, and adds a portion of these holdings will go public in the coming months. Immunotherapy firm Autolus, a small position, is one firm that has already announced plans to list in the near future. The manager is also finding ways to cut good deals ahead of that point: witness the sale of his AJ Bell stake to Invesco, for a valuation at which the platform intends to IPO later this year, as well as M&G’s planned takeover of rural broadband provider Gigaclear.

There’s no question these sales come at a handy time for the Oxford-based investor. Other strategies have also been used in the past: a sizeable holding in Benevolent AI was moved from the Income fund to his Patient Capital investment trust last November, a deal which gave the unquoted tech firm a far larger presence in the trust (it now accounts for 7 per cent of Patient Capital).

But the trust, too, is now bumping against its own 80 per cent unquoted stock limit, and holders are unlikely to welcome further deals in any case.

“What you ideally want to see is purchase and sale decisions happen for the purest reason, not to help accommodate the open-ended fund. But [Benevolent AI was] already held across the business, so there is conviction there,” says Mr Conway, whose firm does have an investment in Patient Capital.

Other holdings

Juggling these considerations will have been a challenge for Chris Martin, who took over as chief compliance officer at Woodford Investment Management last July, according to his LinkedIn profile, following the departure of head of compliance Simon Osborne.