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Dampier: The funds I back to diversify CF Woodford Equity Income

14 June 2015

Hargreaves Lansdown’s Mark Dampier reveals to FE Trustnet the equity income funds he recommends for those looking to diversify exposure to Neil Woodford’s very popular open-ended fund.

By Daniel Lanyon,

Reporter, FE Trustnet

Investors seeking diversification from the CF Woodford Equity Income fund should consider the likes of Standard Life UK Equity Income Unconstrained and JOHCM UK Equity Income, according to Hargreaves Lansdown head of research Mark Dampier.

Inflows have been strong into Neil Woodford’s £6.1bn CF Woodford’s Equity Income fund and in just 12 months it has become the eleventh largest portfolio in the Investment Association universe.

It is up 18.48 per cent since launch in June 2014, making the second best performing portfolio since its launch. The sector average return over this period is 8.6 per cent while the FTSE All Share gained 5.55 per cent.

Performance of fund, sector and index since launch

Source: FE Analytics                                                                                                                                                                 

Dampier (pictured), who has backed the fund since its launch, believes Woodford has done a good job in his first year and that it is not always a good idea to switch out of a fund after such a short period.

However, he agrees that it is also wise to find funds that fit well together in order to balance out returns when different strategies are favoured at different times.

I hold Neil Woodford personally but if you are looking for something that does things differently I would go for Standard Life UK Equity Income Unconstrained, JOHCM UK Equity Income and/or Marlborough Multi-Cap Income. They are all doing something quite different to Neil. They dovetail well together,” he said.

“They are in the same space but do equity income in a different way. They have had a slightly more difficult few months. Although Woodford has had a very good year it is only a year and so I wouldn’t look to reduce it yet. Generally in investing the less decisions you make the better, however holding a number of different funds together is good.”

Here, we take a look under the bonnet of the three funds that Dampier tips to diversify Woodford’s fund.

Standard Life Investments UK Equity Income Unconstrained

Thomas Moore, the manager of this £879m fund, is not held to a benchmark and he therefore has constructed a portfolio split between the FTSE 100 and FTSE 250 as well as some small caps and non-UK holdings.

The manager’s approach in looking away from the more popular income names to find dividends and ideas across the market has seemingly paid off. Moore has a reasonably un-concentrated portfolio of about 60 stocks, mostly in the FTSE 250 followed by the FTSE 100.

Moore aims to find stocks that, despite a low starting yield, are able to increase their dividends over time as he believes this will compound to greater returns in ythe long run.


 

The fund is top decile over three and five years. Since Moore took over the fund in January 2009 it is the fourth best performing portfolio in the IA UK Equity Income sector overall with returns of 219.4 per cent. 

Performance of fund and sector since January 2009

Source: FE Analytics

However it is bottom quartile of the sector for volatility over one and three years. It currently yields 3.48 per cent and has a clean ongoing charges figure (OCF) of 1.15 per cent.


JOHCM UK Equity Income

James Lowen and Clive Beagles, co-managers of the £2.8bn JOHCM UK Equity Income fund, have no holdings in common with Woodford in their top 10

which is one of the reasons for its low correlation to Woodford’s fund over the past year.

It has a large exposure to big oil, something that Woodford has avoided of late. This has been a thorny market to be exposed to after falling more than 60 per cent in a matter of months but the pair are betting the recent bad run of the likes of Shell and BP will not last.

It is a reasonably concentrated portfolio with its largest position – HSBC – making up 6.26 per cent.

Over five years the performance has been top decile, being up 104.6 per cent against a sector average of 79.91 per cent and a gain in the FTSE All Share of 66.26 per cent.

Performance of fund, sector and index over 5yrs

Source: FE Analytics

Dampier is not the only the only fan, as it is also tipped across our AFI panel’s cautious, balanced and aggressive portfolios.

It has an OCF of 0.67 per cent and a yield of 4.18 per cent.

 


 

Marlborough Multi Cap Income

Siddarth Chand-Lall’s Marlborough Multi Cap Income is also tipped across the three AFI portfolios. He has headed up this £1.2bn fund since launch back in July 2011 and the portfolio has consistently stayed at the top of the sector bar 2014 when it nudged into second quartile.

The five crown-rated fund currently has about two-thirds in mid and small-caps with the rest split between micro-caps and the FTSE 100. This partly explains why it had a tougher 2014 than other funds but it still held up well compared to other multi-cap funds as smaller cap stocks had a rocky year.

According to FE Analytics, Marlborough Multi Cap Income is the fourth best portfolio over three years with a 91.77 per cent return. By comparison the sector average was 56.28 per cent and the FTSE All Share’s gain was 46.84 per cent over the same period.


Performance of fund, sector and index since July 2011

Source: FE Analytics

It has an OCF of 0.79 per cent and a current yield of 4.11 per cent.

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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.