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The stocks punishing Neil Woodford in a torrid year

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The stocks punishing Neil Woodford in a torrid year

Yesterday's spectacular collapse in the shares of Provident Financial (PFG) has capped a torrid 12 months for the UK's most famous fund manager, Neil Woodford.

Woodford has endured a series of blows to some of the biggest holdings in his £10.1 billion Woodford Equity Income fund over recent months. But yesterday's hit was the hardest.

Provident Financial's 67% tumble in a single day was one of the biggest in FTSE 100 history. And Woodford was among the doorstep lender's biggest backers, with the stock the fourth largest holding in his flagship fund, together with big positions in his other portfolios. Topping up on the shares following the company's June profit warning has compounded the loss.

Woodford Equity Income's 3.3% fall yesterday was the biggest of any fund in the UK, saddling investors with a 2.9% loss over the last 12 months. The largest fund in the Investment Association's UK Equity Income sector is now its worst performer over a year and the only one to have made a loss. Over the same period, the FTSE All-Share has risen 12.8%.

Woodford has endured a swift reversal of fortunes for this fund, which is only just over three years old, and still boasted the best returns of any fund in its sector as recently as six months ago. Even with the difficulties of the last 12 months, the fund's 26% return since its launch in June 2014 still places it just outside the top quarter of funds in the sector.

And set against a near 30-year career in fund management, the last 12 months is just blip in an astonishing strong long-term track record. Figures compiled by Hargreaves Lansdown, piecing together his performance on the Invesco Perpetual High Income fund together with his new flagship fund, show that a £10,000 investment in 1988 would have grown to £310,400 today. The same amount invested in the FTSE All-Share would have grown to £121,400.

Nevertheless, Provident Financial, which had already begun to weigh on the fund this year even before yesterday's collapse, is the latest in a litany of major Woodford holdings that have fallen dramatically.

Top holdings hit

Woodford's long-term backing of life sciences investor Allied Minds (ALML) has proved almost as painful this year. Once a top 10 holding in the fund, its shares have lost nearly three-quarters of their value since the turn of the year after being forced to write off $146.6 million of assets and having come under attack from short sellers.

AA (AAAA) meanwhile hit headlines after the firing of executive chairman Bob Mackenzie and its shares are down 36% this year.

Shares in Next (NXT) have lost around half their value since a late-2015 peak amid warnings the retailer could face its own 'Kodak moment', although it has recently clawed back some ground on relief investors' worst fears haven't been realised. It's a similar story for Capita (CPI), down 39% over the last 12 months, but off recent lows, having climbed 22% in 2017.

Shares in top holding AstraZeneca (AZN) tumbled 15% on the day it announced a key lung cancer drug had failed an initial round of tests, and are down 11% over the last 12 months.

Third top holding Imperial Brands (IMB) is meanwhile down 20% over the last 12 months, with plans by the US Food and Drug Administration to slash the amount of nicotine allowed in cigarettes weighing on the sector.

Woodford Investment Management has addressed some of these performance issues in its latest update to investors in its funds, issued yesterday.

'We look beyond market volatility and focus on the fundamentals of businesses,' it said. 'This is always the case but particularly so in the past few weeks when several of our holdings including AstraZeneca, Provident Financial, AA, Theravance Biopharma, Prothena and Imperial Brands experiencing share price weakness.'

'When markets lose sight of valuation discipline, as we believe they have done recently, there is always more risk and more opportunity. We seek to avoid the former and capitalise on the latter.'

The group also argued Imperial Brands, the fund's only remaining tobacco holding after the sale of British American Tobacco (BATS) this summer, could still thrive amid the FDA crackdown.

'We see this as the beginning of a process to deregulate next-generation products,' it said. 'The shares, in our opinion, have not looked as attractive as they are currently, for several years.'

But some of the lesser-known names in the portfolio have also taken their toll. A heavy fall in a smaller company can still dent a fund's returns if the stake in it is large.

AIM misses

Take Imperial Innovations, which is listed on the Alternative Investment Market (AIM) and now known as Touchstone Innovations (IVO). It was a top 10 position when the fund launched, but the shares have been sliding since a mid-2015 peak, and have lost a third of their value over the last 12 months.

That's despite the company, which commercialises university scientific research, being pursued by another Woodford holding, IP Group (IPO). Touchstone has now rejected two IP Group bids which it claims 'fundamentally undervalue' the business.

Likewise, fellow AIM-listed 4D Pharma (DDDD), which has fallen 56% over the last 12 months. Although the stock started out as a 0.4% position in 2014, the shares' rally meant that by the summer of last year it accounted for 1.2% of the fund.

In pounds-and-pence terms only Imperial Brands and Allied Minds have done more damage to the fund over the 12 months to the end of June, although Provident Financial will have eclipsed all three with yesterday's showing. And in fairness, the stock is still up around 69% since the fund launched.

Other small stocks have also hit the headlines for the wrong reasons. US firm Northwest Biotherapeutics (NWBO.O) is down 98% since the summer of 2015 when it was forced to recruit a former FBI special agent to investigate claims of financial impropriety.

Or clean water technology firm Halosource (HALH) and diagnostics group Sphere Medical (SPHR), down 73% and 89% respectively over the last year after both warned they were soon to run out of money unless they secured new investment. Halosource received its cash injection, while Sphere Medical is attempting to delist from AIM in order to secure more money from Woodford.

Pallet maker RM2 International (RM2) is meanwhile down 81% over 12 months, with The Sunday Times highlighting the company's heavy cash burn rate.

Big wins drowned out

Buried beneath Woodford's headline performance over the last year are some spectacular performers. Online estate agent Purplebricks (PURP), which Woodford backed before its flotation, is up 214% over the last year, litigation funder Burford Capital (BURF) has rallied 167% and Hostelworld (HSW) has risen 90%. The problem is they have been drowned out by the floundering of some of his biggest holdings.

And it's not the first time Woodford has found himself at the bottom of the performance charts. His most famous period in the doldrums came towards the end of the last century, when he sat on the sidelines as tech stocks soared in the dotcom boom. Avoiding the bursting of the tech bubble and shunning banks ahead of the financial crisis were the two key investment calls on which he has built his reputation. Investors will hope he will be proved similarly prescient in sticking by some of the stocks that have punished his fund over the last year.

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