Skip to the content

The hidden gems in the CF Woodford Equity Income fund

14 July 2014

Woodford Investment Management has released details of all 61 holdings, revealing a heavy preference for early-stage pharma towards its tail-end.

By Alex Paget,

Senior Reporter, FE Trustnet

Circassia, 4D Pharma, and Oxford Pharmascience are among the early stage UK businesses star manager Neil Woodford is backing in his newly launched CF Woodford Equity Income fund, according to an announcement made today.

Information regarding Woodford’s largest holdings was made public last week. At the time, FE Trustnet pointed out that the manager is maintaining a high weighting to mega-cap pharmaceutical and tobacco stocks, like he did with the Invesco Perpetual funds he recently stepped down from after more than 25 years’ service at the group.

His new venture, Woodford Investment Management, has just released the full list of the £1.6bn fund’s 61 holdings and, like with his previous portfolios, it contains a number of early stage businesses at its tail-end.

ALT_TAG “I strongly believe that investing in early-stage businesses can add meaningfully to the long-term performance of the fund, albeit individual positions will be small in the context of the overall portfolio,” Woodford (pictured) said.

“The UK has some of the best universities in the world, developing some of the best intellectual property. Unfortunately, as an economy, we have not had a good track record of converting these great ideas into long-term commercial success.”

“There are many reasons for this, but the principal one is a distinct lack of access to appropriate long-term patient capital.”

He added: “This combination of great innovation and a lack of capital has created some very exciting investment opportunities, which the fund is seeking to take advantage of via a portfolio of early stage investments.”

One example is Circassia Pharmaceuticals, which is listed on the FTSE Small Cap index.

The allergy vaccine company, which is attempting to develop cures for the likes of hayfever and people who are allergic to cats, originated from Imperial College London.

Woodford had held it as an unquoted business when he was at Invesco Perpetual and participated in its IPO in March 2014.

It currently makes up just 0.03 per cent of his new portfolio and, according to FE Analytics, the stock has lost close to 10 per cent since its first day of trading.

The FTSE Small Cap index, on the other hand, has lost 1.47 per cent over this time.

Performance of stock vs index since Mar 2014


ALT_TAG

Source: FE Analytics


Woodford is bullish on Circassia over the long-term, however, citing its high-quality intellectual property and “scientific leadership” as reasons to be optimistic.

4D Pharma, which floated in February this year, makes up 0.43 per cent of Woodford's portfolio.

The Manchester-based company is developing a number of projects that target new therapeutic areas of the healthcare sector. It sits on the FTSE AIM and has a market cap of less than £70m.

The stock, unlike Circassia, has made a positive return since its first day of trading.

Sticking with the healthcare theme, the manager also holds 0.35 per cent of his fund in Oxford Pharmascience, a £44m FTSE AIM-listed company that re-develops pre-approved drugs for pain relief and cardiovascular diseases.

It has a longer track record than Circassia, having come to the market in March 2010. It has returned 33 per cent over this time, though it has lost 16 per cent over the last three months.

Performance of stock since Mar 2010

ALT_TAG

Source: FE Analytics

Rob Morgan, pensions and investment analyst at Charles Stanley Direct, says that although Woodford’s early stage holdings differentiate his portfolio from other funds in the sector, investors shouldn’t expect them to have too much of an impact on overall performance.

ALT_TAG “He invests in these businesses as they operate in sectors and areas that he finds interesting and because they have the potential to be disruptive over the longer term,” Morgan (pictured) said.

“One of the reasons he holds them is because he wants to keep an eye on what is further down the road and they help him think about portfolio positioning for the future. However, it is clear that he can’t put too much money into them and that is because of the size of the fund.”

He added: “They will only ever make up a small proportion of the fund and so they won’t have too much of an impact. However, as long as researching these companies doesn’t take up too much of his time, I think they add to the fund.”

Morgan says that the fate of the fund will rely much more heavily on Woodford’s larger holdings.

His five largest individual stock bets are GlaxoSmithKline, AstraZeneca, British American Tobacco, BT and Imperial Tobacco, which combined make up more than 30 per cent of the fund’s AUM.

Woodford launched his CF Woodford Equity Income fund in June 2014. The £1.6bn of assets raised was the largest amount taken in by a newly launched fund during its offer period in UK history.


According to FE Analytics, the fund has lost 0.69 per cent over that time, but has so far outperformed both the IMA UK Equity Income sector and its FTSE All Share benchmark since its launch.

That is clearly a very short period of time, however, and investors buying into the new portfolio will want Woodford to try and replicate his stellar 26-year track record as manager of the Invesco Perpetual High Income fund.

Our data shows that when he was manager of the five crown-rated fund between February 1988 and March 2014, it returned 2,407.69 per cent, beating the FTSE All Share by more than 1,400 percentage points.

Performance of fund vs index between Feb 1988 and Mar 2014

ALT_TAG

Source: FE Analytics

His new fund yields 4 per cent and its annual management charge (AMC) is 1 per cent, which the group says will become the same as the ongoing charges figure (OCF) as it absorbs fund-related expenses.

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.