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Charles Stanley drops Woodford from fund buy list

Online stockbroker flags concerns over Woodford Equity Income's investment in 'earlier-stage businesses'.

 
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 Assets in the fund have fallen from over £10 billion a year ago to £6.7 billion as investors have withdrawn money.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.

5 comments so far. Why not have your say?

Law Man

May 22, 2018 at 18:10

The decline of Mr Woodford is sad; he has been a great manager until fairly recently, and you would no bet against him coming back.

However, as small investors we have to protect ourselves. I sold Woodford Equity fund some time ago at a profit; and last year sold Mr Barnett's PLI.

Conversely I have retained WPC on the basis it offers something different, and being 'Patient' is part of the concept; although I do wonder if Mr Woodford has the experience in the types of company held.

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Tyrion Lannister

May 22, 2018 at 22:39

I switched the Equity Income fund into the income focus fund about a year ago, this has also performed badly.

Woodford is on borrowed time for me, if the performance is showing no signs of improvement by the next XD date, I’m going to sell and transfer the funds into a FTSE 100 tracker.

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Charles Hughes

May 23, 2018 at 13:24

I also fear that he's fast losing his reputation as the UK's Buffet - some angels are destined to fall. There are others out there, SOMEWHERE!

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Anonymous 1 needed this 'off the record'

May 23, 2018 at 14:02

Joel Greenblatt - a US fund manager with a phenomenal track record and an academic - showed in recent research that c.50% of fund managers with top decile returns over 10 years spend at least 3 years of that period in the worst decile. In addition Rob Arnott at Research Affiliates draws attention to a well known regularity in asset markets that 3-5 year mean reversion of styles is well documented - on this basis its best to look for fund managers with strong processes and poor 3-5 year records as it's more likely they will perform very well in the next 3-5 years. Taking advantage of the volatility of a manager's returns is difficult emotionally - as the comments on Mr Woodfords returns above demonstrate - but the path to better returns.

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David Whitnear

May 26, 2018 at 19:57

Over a year ago I sold half of my holding in in Woodford Income Fund and put the proceeds in a FT100 tracker. I'm happy to hold on to this decreased exposure in the fund. Now that some experts are dropping Woodford it might prove to be a turning point in the performance of the Income Fund.

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