It has been 12 months since star manager Neil Woodford opened the gates to a wall of money eager to scoop up units in his CF Woodford Equity Income fund.
After 26 years at Invesco Perpetual, whereby he picked up many accolades and a huge following for his outperformance, the news that he was branching out to start his own firm sent ripples across the asset management world.
Due to a combination of record-breaking inflows and strong performance, the fund has since swelled to a whopping £6.2bn in both private and institutional money. Wealth manager St James’s Place also awarded him a £3.6bn mandate when he launched his own business.
Investors have not been disappointed with the first year of CF Woodford Equity Income. Putting £10,000 in at launch in June 2014 would have netted a profit of £2,004 – comfortably doubling the average return in the IA UK Equity Income sector and more than tripling the return of the FTSE All Share.
Performance of fund, sector and index over 1yr
Source: FE Analytics
This gives Woodford’s fund the top spot in the sector over one year, followed by Majedie UK Income with a 19.11 per cent total return and Montanaro Equity Income with 16.23 per cent.
Of the £2,004 total return, £229.44 was paid out in the form of dividends although this only includes three out of four dividends for the year with another expected shortly.
By comparison the Vanguard FTSE UK All Share Index fund – a passive vehicle – which pays out once year – has provided income of £318.58 over the past 12 months.
Income earned of fund and tracker over 1yr
Source: FE Analytics
Mark Dampier (pictured), head of research at Hargreaves Lansdown, says the numbers are not surprising.
“He has got on bloody well. You had all those so-called fund experts writing a load of piffle beforehand. It has clearly had a great start. The bid for AstraZeneca really started the whole thing rolling. He always going to be up there,” he said.
“Parts of the media and other commentators are just looking to shoot him down. When anyone is doing the best at something it is great sport to try and knock them down. The truth is like for any other fund manager: there will be times when things are tougher. Neil has been near the bottom of the tables before, in 2012 for example. But that is the nature of proper active management.”
Dampier is not considering selling out of Woodford’s fund or even trimming exposure, despite an “inevitable” period of worse performance at some point.
“I hold him personally and why would I want to reduce exposure? However, it depends on what else you hold. You want things that dovetail nicely together and then not do very much. The fewer things you do to your investment portfolio the better and it’s only been a year for Neil Woodford,” he said.
The FE Alpha Manager kicked off the CF Woodford Equity Income fund 12 months ago with a characteristic high conviction exposure to big pharmaceuticals and tobacco. AstraZeneca, GlaxoSmithKline, British American Tobacco and Imperial Tobacco are his four major holdings, representing 25 per cent of the total portfolio.
Nine of the fund’s top-10 positions were also in Invesco Perpetual High Income’s top-10 – Woodford’s largest fund when he left the firm in March 2014. Today they also have nine stocks in common. Woodford now has Allied Minds instead of the Provident Financial held by Invesco Perpetual High Income’s Mark Barnett.
Another 84 stocks make up the rest of the portfolio, with the vast majority representing less than 1 per cent of assets each. Many of these are in the healthcare/biotech space, as well as some being unlisted such Oxford Nanopore.
This has helped Woodford to the score the highest alpha in the IA UK Equity Income sector over the past year as well as the fifth lowest maximum drawdown. He also scored best for Sharpe ratio, which gives indication of risk-adjusted returns.
Meera Hearnden, senior investment manager at Parmenion, notes that Woodford has given investors a smoother ride than a FTSE tracker as well as the average UK equity fund as well, posting a lower level of volatility.
“The CF Woodford Equity Income fund is top of its sector since launch and what’s pleasing is that this performance has been achieved with below peer group volatility, something we look for as part of our fund-picking approach,” she said.
“It is clear that the freedom Neil Woodford has at his new venture to analyse stocks and make quick decisions is proving positive for investors.”
“The fund can make up a core holding in a wider portfolio although investors should appreciate that Neil Woodford has a distinctive value style, which means that the fund may at times fall out of favour. But over the long term, periods of weaker performance should be more than made up for in superior outperformance.”
Nathan Sweeney, senior investment manager at discretionary fund manager Architas, has held CF Woodford Equity Income fund across a number of portfolios shortly after launch and continued to add to the positions throughout 2014.
“We have been very happy with the performance of the fund since launch, which was helped in 2014 by its exposure to defensive sectors such as pharmaceuticals and tobacco that performed very well,” he said.
“There has been a market rotation during 2015 into more cyclical areas but the fund has still managed to deliver reasonable returns as Woodford has continued his long-held faith investing in small and under researched start-ups that provide very strong potential returns,” he said.
“Overall Woodford’s current and previous UK funds have tended to perform well at stress points in the market due to their defensive nature. As such we partly use his funds as a form of market correction insurance while also acknowledging his ability to deliver potential higher returns in bull markets due to his holdings in smaller companies.”