A mixture of small-, mid- and large-cap stocks have been the top contributors to Neil Woodford’s CF Woodford Equity Income fund in its first year, according to data from Woodford Investment management.
The £6.1bn fund was launched to great fanfare just over 12 months ago, and investors haven’t been left disappointed; according to FE Analytics, CF Woodford Equity Income returned 17.48 per cent in its first year to 19 June 2015, compared to 6.98 per cent from the IA UK Equity Income sector average and 3.47 per cent from the FTSE All Share.
This put it 1 percentage point ahead of its closest competitor, the £935m Majedie UK Income fund.
Performance of fund, sector and index first 12 months
Source: FE Analytics
Woodford is well-known for taking high conviction sector bets, and his portfolios have been dominated by large and mega caps in recent years. However, exclusive analysis compiled for FE Trustnet by Woodford IM shows that a mixture of FTSE 100, FTSE 250, FTSE AIM and US-listed stocks have been the most effective stock-picks.
In total Woodford’s five largest contributors, shown in the table below, contributed just under 9 percentage points of the 20.31 clocked up in its first 12 months.
American investment firm Allied Minds – a constituent of the FTSE 250 – was the biggest contributor to the fund overall, even though it only entered the portfolio two weeks after the fund launched following its IPO. While it had an average weighting of only 2.95 per cent, it contributed 3.43 percentage points.
Source: Northern Trust
The company’s share price has almost tripled in value since its came to market, even though its suffered significant weakness since April.
According to Woodford, “[Allied Minds’] mission is to ‘form, fund, manage and build’ technology businesses using its unparalleled access to the best intellectual property emanating from US universities and other government-sponsored research institutions.”
“In the US, it has few peers, which is one of the reasons it decided to list in the UK where other similar companies are listed.”
Encouragingly, companies with the attributes of Allied Minds are the focus of Woodford’s newest venture, the Woodford Patient Capital Trust.
Performance of stock and index since June 2014
Source: FE Analytics
About the same portion of Woodford Equity Income’s total return has come from the manager’s long-held position in tobacco stocks. Imperial Tobacco and Reynolds American accounted for an average of 6.29 per cent and 3.37 per cent of the portfolio, and contributed a combined 2.62 percentage points.
Biotech – another theme that runs through the Woodford Patient Capital Trust – unites the remaining two top contributors. Prothena, which is listed on the NASDAQ, has rocketed up 150 per cent in a year following data released in recent months that proves its tie-up with Swiss pharmaceutical giant Roche is bearing fruit in its development of Parkinson’s disease treatment.
Similarly, Woodford’s smaller bet on UK-listed 4D Pharma, which he accounted for just 0.79 per cent of the portfolio on average, has contributed 1.63 percentage points worth of total return.
4D Pharma floated in February 2014 and made up 0.43 per cent of Woodford's portfolio when his first factsheet was made public.
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 had a market cap of less than £70m when the manager bought it. It is now worth just over £600m.
Two of its treatments for irritable bowel syndrome and paediatric Crohn’s disease are now due to start clinical trials in 2016, the AIM listed venture announced recently.
4D Pharma is up a whopping 459.99 per cent since Woodford launched the fund, hugely outpacing the FTSE All Share.
Performance of stocks and index since June 2014
Source: FE Analytics
Neil Woodford says he has used the same philosophy and ‘long-term approach’ he has always advocated throughout his career when running CF Woodford Equity Income.
“I invest in a company only when I am convinced of the compelling long-term opportunity but I also have to consider how the global economy influences the stocks I own and the ones that I don’t,” he said.
“The portfolio that took shape last summer reflected the cautious view I had on the global economy at that time – it is a view that I continue to hold today. As a consequence, we were very careful in building a portfolio that avoided companies that we believed were vulnerable to a faltering global economy.”
“It is hard to discern one particular feature of the portfolio that has driven good performance over the year – and it is far too early to conclude that the fund’s strategy has worked. However, some sectors of the market, which are not represented in the portfolio such as oil, gas and mining have tended to perform poorly.”
Woodford says turnover has been low, reflecting a belief in long-term investing. While some stocks have had a negative impact on performance, he has been buying into weakness as he believes they remain attractive on a longer term view.
Drax, GlaxoSmithKline and Rolls Royce have been the biggest detractors from performance, contributing 3.24 percentage worth of drag on performance altogether.
The three have all seen secular weakness over the past year with Drax losing almost half its value. The Yorkshire-based power generator has been hit by legislation in recent months, which could signal the potential removal of subsidies for its biomass business.
Woodford said: “We have continued to build exposure to several core holdings, focusing particularly on those that have displayed periodic share price weakness. This includes GlaxoSmithKline, Drax and Rolls-Royce.”
“Our strategy and outlook for the fund have been consistent since launch. We see a challenging future for the global economy, corporate earnings and indeed for equity markets, which have been inflated by successive and substantial injections of liquidity through quantitative easing,” he added.
Rightster Group and Velocys also make it onto the list of top five detractors.
