The fund management industry should carry out a broad-scale appraisal of fees charged to underlying investors as well as communicating with greater transparency, according to star manager Neil Woodford (pictured). 
It has been close to two years since Woodford left Invesco Perpetual, his employer for more than 25 years, where as head of UK equities he ran some of the UK fund management industry’s largest equity portfolios, to set up his own firm Woodford Investment Management.
His main fund has now swelled to more than £8bn of assets under management thanks to huge inflows and the best performance in the IA UK Equity Income sector in terms of total return since it launched in June 2014, a position consistently held over its tenure.
Since launch, the fund has returned 18.05 per cent compared to an IA UK Equity Income sector average of 1.34 per cent and a fall in the FTSE All Share of 4.62 per cent.
Performance of fund, sector and index since launch
Source: FE Analytics
Woodford says he was and still is highly motivated to see a shift in the culture of fund management to bring greater downward pressure on charges and increased transparency over costs and investment decisions.
“We think that fund management needs to change. If it is going to survive and prosper in the future it has to change,” he said.
“It has been very, very slow to change and reluctant to change largely because it is an incredibly profitable activity. High returns, high profitability and high cash flow are always things that people who enjoy them are very reluctant to give up.”
“We have created a low-cost fund management business and passed those costs on to our clients via our charging structure and we want to do more of that. We would like to complete the journey ... there are other elements in the charging structure that clients need more transparency on.”
The CF Woodford Equity Income fund has one of the lowest ongoing charges figures (OCF) in its sector of 0.75 per cent with only the £34m Montanaro UK Income and £804m Vanguard FTSE UK Equity Income Index funds cheaper at 0.34 per cent and 0.22 per cent, respectively.
“The fact that clients are paying for stamp duty, research and execution alongside all the other things is not immediately apparent. That is something we need to deal with as an industry. We want to go further with what we have done already,” Woodford added.
The manager also says that greater transparency in a broad sense should become more prevalent among the larger fund groups.
“I spent many, many years in an organisation that is typical of most businesses that thinks that it is irresponsible or wrong to tell clients what you are doing with their money. I've never believed that is the case,” he said.
“The industry is pregnant with inertia. It is the antitheses of transparent.”
Not only has Woodford so far confounded his critics since leaving Invesco Perpetual two years ago with the performance and popularity of the CF Woodford Equity Income fund, he has also launched the Woodford Patient Capital Trust.
Headed by Woodford, the trust was the largest launch of any closed-ended vehicle in history when it listed in May 2014.
The manager is targeting a long-term return of around 10 per cent per year by investing in early-stage companies both quoted and unquoted within areas such as life sciences, healthcare, energy, utility, and technology, particularly in firms with ‘disruptive’ technologies.
The closed-ended vehicle not only has a unique investment proposition in looking at such businesses, but it also an innovative fee structure with no base fee and a performance fee of 15 per cent of any excess returns over a 10 per cent cumulative hurdle rate per annum, subject to a high watermark.
The portfolio also has included mega dividend ‘stalwarts’ whose dividends pay for the day-to day costs such as GlaxoSmithKline, Provident Financial and L&G.
However, Woodford says he will be selling these holdings down and increasing exposure to smaller early stage businesses as the pay-outs from the blue chips are more than sufficient to cover the costs.
“The costs are lower than we expected and given valuations it makes sense to have more in early stage businesses,” the manager said.
Thanks to a sell off in a biotech and a small fall to a discount from a rapidly gained premium in its first few months, it has been a tough time for the Woodford Patient Capital trust.
Performance of index over 1yr
Source: FE Analytics
Back in August last year it was up 19.3 per cent – thanks to a double-digit premium – whereas now it is down 12.93 per cent. The trust is on a discount of 0.1 per cent today.
The trust is down 10.5 per cent, which according to our data is a performance beating the FTSE All Share’s loss of 10.64 per cent but not the IT UK All Companies sector’s average loss of 4.71 per cent.
Performance of trust, sector and index since launch
Source: FE Analytics
