Many individuals as well as financial institutions will be invested in Neil Woodford’s Equity Income Fund. For those that do not know his name, for many years he was the fund manager at Invesco Perpetual responsible for it’s highly successful income funds. He is renowned for his contrarian management style, sometimes investing in unpopular companies where he sees future potential or not investing in sectors that are the current darlings of the markets. For example, he famously refused to invest in over-priced technology stocks during the tech boom which ultimately proved to be the correct call and he has avoided banks, mining, and energy shares due to his negative views on dividends within these sectors.
In April 2014 he left Invesco Perpetual to set up his own company launching, amongst other funds, it’s flagship Woodford Equity Income Fund which has attracted funds of circa £10 billion. However, recently he has had to apologise to investors following the poor performance of the equity income fund which has underperformed returning 0.59 per cent compared with the All Share’s 8.21 per cent year to date.
“I’m very disappointed with the short-term performance and indeed, have been criticised for it,” said Mr Woodford in a video posted online. “I think I’m right to be criticised. It’s been a very difficult period. And I’m very sorry for the poor performance that we’ve delivered really now since 2016.”
So what has gone wrong? Woodford’s funds have been hit at various points this year by sliding share prices at holdings including pharmaceutical companies AstraZeneca and Circassia, lender Provident Financial, and intellectual property group Allied Minds. AstraZeneca, which held 8.1% of the portfolio, suffered a 16% fall in it’s share price in July due to the failure of a drug trial and Provident Financial, which represented 4.1% of the portfolio, saw it’s share price plunge nearly 70% on 22nd August due to an unsuccessful restructuring of it’s home credit business. The company has since fallen out of the FTSE 100.
So should investors switch out into other better performing funds? Every investor will have a view and it is painful to see a fund in which you invest suffering in the short term. The temptation will be to rush to the exit door. A more sanguine approach may be preferable, however, ensuring that, in the first instance, a satisfactory level of diversification exists within the portfolio by investing in a broad range of other funds. Fund managers will have different approaches to investing and by spreading fund risk you will be less exposed to one fund performing less well than others.
Equally, sometimes being patient and not just ‘jumping ship’ can pay rich dividends in the medium to longer term. A bit of ‘stick-ability’ can be rewarded and Woodford has proved his case in the past. This period could also be seen as a significant buying opportunity with this fund. Time will ultimately tell.
Although I will continue to monitor the fund, my view currently is to stick rather than bust.