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Charles Stanley drops Woodford from fund buy list

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Charles Stanley drops Woodford from fund buy list
 

Charles Stanley Direct has dropped Neil Woodford's flagship income fund from its best buy list, flagging concerns over the manager's investment in early-stage companies.

Woodford Equity Income, a mainstay of the online stockbroker's Foundation Fundlist since January 2015 has been cut over concerns performance 'may become increasingly impacted by a relatively small number of existing high growth and earlier-stage businesses in the portfolio'.

Charles Stanley Direct pension and investment analyst Rob Morgan said he had 'small' concerns over the 'make-up and diversification of the higher growth part of the fund'.

'Yet the Foundation Fundlist is reserved for our highest-conviction investment ideas, so we feel it is right to remove the fund from the list at this juncture while we monitor it further and explore various options within the UK equity income sector,' he added.

Woodford has endured a torrid recent run, after a number of high-profile heavy falls for key holdings.

The Woodford Equity Income fund is rooted to the bottom of the Investment Association's UK All Companies sector over one and three years, down 15.8% and 8.4% over those periods. Assets in the fund have fallen from over £10 billion a year ago to £6.7 billion as investors have withdrawn money.

Share price slumps for major holdings like Provident Financial (PFG), Capita (CPI) and Prothena (PRTA.O) have all weighed on performance.

Some early-stage companies have also dented returns. Over the last three years, Allied Minds (ALML), an intellectual property specialist which listed on the stock exchange in 2014, has weighed more heavily on Woodford's portfolio than any other stock.

Early-stage companies have long formed part of Woodford's investment approach, with a long tail of smaller companies a feature of the Invesco Perpetual Income and High Income funds he used to run.

They have formed a key flank of his proposition since launching his own investment firm, Woodford Investment Management, in 2014.

Unquoted companies had grown to 9.5% of the Woodford Equity Income fund in March, close to the 10% limit imposed by City regulators.

Woodford's investment trust focused on early-stage companies, Woodford Patient Capital (WPCT) has meanwhile struggled, with the shares having lost a quarter of their value since launch three years ago.

Charles Stanley's remaining active equity income fund picks include  the £3.7 billion JOHCM UK Equity Income fund managed by Citywire A-rated Clive Beagles and James Lowen and the £299 million River and Mercantile UK Equity Income fund run by Dan Hanbury.

They also recommend two investment trusts, the £899 million Perpeual Income & Growth (PLI) run by Mark Barnett, Woodford's successor as manager of the Invesco Perpetual Income and High Income funds, and Standard Life Equity Income (SLET), run by Thomas Moore.

Morgan said he would be considering Woodford's smaller Woodford Income Focus fund, launched last year, for inclusion on the list. Early-stage companies form a much smaller part of that portfolio.

He added that he still believe Woodford Equity Income to be 'a high quality fund'.

'Many investors will want to back him to repeat his strong long term performance in the future,' he said.

'Indeed this may be a good time if he bounces back from what has been a tough period by his exceptionally high standards.'

Charles Stanley's removal of Woodford's flagship fund from its 'buy' list follows fund group Jupiter's sale last year of its £300 million stake in its Merlin range of 'multi-manager' funds, a key contributor to Woodford Equity Income's outflows.

John Chatfeild-Roberts, head of Jupiter's Merlin team, said last week he had wanted to take profits after a strong run from the manager. Profit warnings from key Woodford holdings and concerns over the Woodford's role as both investor and business owner were also factors behind the sale.

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