For many UK investors the demise of Woodford Investment Management was one of the biggest and saddest stories of 2019.
Neil Woodford was Britain’s most well-known fund manager and a bedrock of thousands of investor portfolios for more than three decades.
But the galling oversights on liquidity have resulted in many seeing significant losses on their investment, something which in turn has damaged trust levels in the active management industry.
After waiting more than six months to see how much of their investment they would get back, investors finally saw the first tranche of their investment returned at the end of January, receiving between 46.4p and 58.9p per share, depending on which share class they held.
The question now is what do investors do with that money?
- Losses created by Neil Woodford should not put people off investing
- There are many other options out there for clients who want to invest
- Investors can still receive income from a variety of regions
I expect some will not want to invest again and will simply place their money into cash accounts.
However, for me that would be a big mistake given we are in a low interest rate world, with the current UK base rate at 0.75 per cent and unlikely to increase any time soon.
Anyone investing for a reasonable length of time will suffer as consumer prices will increase, negating any returns.
I do not relate what happened to Woodford IM to the wider active management industry – it is a failure of an individual manager rather than the shortcomings of the industry.
The majority of active managers will continue to do as they have done in the past: take advantage of valuations opportunities in the market.
That is the best way to achieve both growth and income in this environment and many have an exceptional track record of doing just that.
With this in mind, here are a few alternative income options for investors looking for a new home for their savings.
Traditional UK equity income players
Going into a traditional UK equity income fund with a focus on the FTSE 100 would be the logical route, given it has been so successful in the past for investors.
The dividend yield of the FTSE 100 at the end of 2019 was 4.4 per cent, which is higher than the historical average yield.
Investors may want to consider a couple of experienced players in the market, such as the Artemis Income fund, managed by Adrian Frost, Nick Shenton and Andy Marsh.
Mr Frost is a veteran who established a great track record before joining Artemis in 2002.
The fund typically holds between 50-70 stocks and has a bias towards large-cap equities (currently 81.3 per cent).
The fund, which has yield of 4.3 per cent, has returned 153.7 per cent to investors in the past decade alone.
Another experienced manager to consider is Martin Cholwill, who has managed the Royal London UK Equity Income fund since 2005.
Mr Cholwill seeks to build portfolios for all market conditions, by prioritising stocks with free cash flow and avoiding overvalued stocks.