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Paul Craig: Why I buy Woodford without the biotech for the Cirilium funds

16 October 2015

Old Mutual’s fund of funds manager is unsure about Neil Woodford’s foray into venture capital and is seeking his exposure to unquoted stocks through a different investment trust.

By Daniel Lanyon,

Senior reporter, FE Trustnet

The HarbourVest Global Private Equity investment trust is a better way to gain unquoted exposure than through Neil Woodford’s fund and investment trust, according to Old Mutual’s Paul Craig.

Star manager Woodford, who runs the CF Woodford Equity Income fund and the Woodford Patient Capital investment trust, is one of the most highly regarded fund managers in the UK space thanks to a strong track record and straight-forward approach to investing.

Performance of Woodford versus peer group since 1 January 2000


Source: FE Analytics

He built his career over 25 years at Invesco Perpetual running its flagship UK equity income funds before moving on to start his own firm last year.

The key difference between his new fund, which he launched in June 2014, and the investment trust he launched in April this year and his traditional style is a foray into very small-cap firms and some unquoted firms. A significant chunk of his new portfolios is allocated to these stocks, in which the manager sees strong long-term potential.

Craig, who manages the highly successful Old Mutual Cirilium range of fund of funds, is a fan of Woodford having owned his Invesco Perpetual funds and then followed him when he started his new business. However, he is wary of the exposure to unquoted and micro-cap names.

“I originally bought into Woodford’s fund while I was at Henderson. I like the fact he takes concentrated bets in good companies and is prepared to invest for the long term,” he said.

“However, what I like less is having all the exposure to the start-ups. Neil is great investor but I just don’t know how good he is at buying venture-type businesses.”

“If you have £20bn under management [as Woodford did at Invesco Perpetual] and things go wrong, nobody really notices. Not to put Woodford down but if I want to exposure to venture capital then I will buy a venture capital manager.”


 

Craig does, however, have Woodford running money in the Cirilium range, which includes Old Mutual Cirilium Balanced, Old Mutual Cirilium Dynamic, Old Mutual Cirilium Moderate Old Mutual Cirilium Strategic Income and Old Mutual Cirilium Conservative.

But he has opted out of buying the Woodford Patient Capital trust and has exposure instead to a segregated mandate based on the manager’s open-ended fund. This is a UK equity income mandate without the unlisted holdings.

“I didn’t have a great deal of choice while I was at Henderson and I bought his UCITS fund but I now have a segregated mandate with him and because of this it does not have the unlisted stocks. So it gives me exposure to him but without those positions.”

Instead Craig opts for the US-based HarbourVest Global Private Equity investment trust, which is portfolio of different private equity funds and trusts. It has returned 167.05 per cent since listing in the UK in 2010, comfortably beating its sector peers.

Performance of trust since 2010


Source: FE Analytics


The £1.3bn trust is currently on a 19.9 per cent discount and has an ongoing charges figure (OCF) of 0.49 per cent.

“They are the type of people who bring you Hoover, Facebook, Twitter and LinkedIn. They have now been selling those businesses because they are on stupid valuations,” he said.

A recent FE Trustnet study found Old Mutual Cirilium Dynamic, the range’s most aggressive portfolio, was the second highest returning portfolio of multi-asset funds in Investment Association universe since the collapse of Lehman Brothers bank ushered in the financial crisis seven years ago.

Not only has it outperformed the FTSE All Share but it has had lower annualised volatility over the past seven years and better risk-adjusted returns. The fund also beat its average peer on both of these measures.

Performance of fund, sector and index over 7yrs


Source: FE Analytics

Old Mutual Cirilium Dynamic has been managed by Craig since June 2008 but until recently it was called Henderson Cirilium Dynamic. It, along with the other portfolios in the Cirilium range, were sold to Old Mutual Global Investors in 2014.


 

Woodford did recently take a hit from his holdings in the smaller and unquoted biotech holding in these segments of his fund and trust with the broader market selling off since April, substantially in the case of biotech.

A spokesman for Woodford said the manager did increase exposure in both the fund and trust, including significantly adding to a position British clinical-stage stem cell business ReNeuron in the IT and buying two new US healthcare positions to the portfolio in the form of AbbVie and Theravance Biopharma in the open-ended fund.

The trust has returned 5 per cent since it launched in April while the IT UK All Companies sector returned 1.93 per cent and the FTSE All Share index fell 7.15 per cent.

CF Woodford Equity Income is still top of the IA UK Equity Income sector since launch last year with a return of 18.35 per cent.

Performance of fund, sector and index since launch


Source: FE Analytics


CF Woodford UK Equity Income currently yields 4 per cent and its clean OCF is 0.75 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.