Woodford trust outshines flagship funds
The FE Alpha Manager has long been associated with the Invesco Perpetual Income and High Income funds, but his Edinburgh Investment Trust more than holds its own against the pair.
By Mark Smith, Senior Senior Reporter, FE Trustnet
Friday July 27, 2012
Star manager Neil Woodford’s
closed-ended portfolio upstages its open-ended counterparts on a number of key performance measures, the latest FE Trustnet
The manager only took over the Edinburgh Investment Trust
in September 2008, but has already made quite an impression – even compared with his flagship income funds, which he has been running for more than two decades.
"Neil Woodford is a very highly rated manager and with good reason," said James Brown, investment trust analyst at Winterflood Securities.
"His macro calls have consistently been spot-on and in general he has been justified in sticking by high-yielding defensive companies."
Since September 2008, Woodford has achieved stellar returns with below-average volatility.
In terms of out-and-out returns, the Edinburgh Investment Trust has much better results than both the Invesco Perpetual Income
and High Income
The investment company has returned 74.48 per cent over the last three years while the High Income and Income funds have returned 46.14 per cent and 44.78 per cent respectively.
Performance of funds vs trust over 3-yrs
Source: FE Analytics
The Edinburgh Investment Trust also has a more impressive yield than its open-ended counterparts – 4.43 per cent versus 3.89 per cent from the High Income fund and 3.76 per cent from the Income one.
Woodford’s open-ended funds remain two of the most widely held funds in UK investors’ portfolios, with more than £20bn assets under management between them; however, some commentators say that their sheer size is restricting the manager’s approach.
With £1.2bn assets under management (AUM), the Edinburgh Investment Trust is less likely to run into problems with liquidity and is therefore freer to invest further down the capitalisation spectrum.
Brown added: "The Edinburgh Investment Trust can move around more easily than his £20bn-plus open-ended funds. It could conceivably move into mid caps, which the other funds would find very difficult."
The closed-ended structure also means that there is a fixed number of shares and it therefore remains unaffected by fluctuations from inflows and redemptions.
Another advantage afforded by the closed-ended structure is that the manager can use revenue reserves to increase the dividend or boost it in more difficult markets.
Investment trusts also tend to be considerably cheaper. The annual management charge of the Invesco Perpetual Income fund – the cheaper of the two open-ended funds – is 1.5 per cent while the Edinburgh Investment Trust has ongoing charges of just 0.73 per cent.
Despite these benefits, Brown says there are some historical issues associated with the trust that investors should be aware of.
"The expensive debt it has on its books, as a result of long-term debentures taken out in the late 1980s and early 1990s, means that it’s on more like a 9 per cent premium to net asset value (NAV) rather than the 2 per cent that’s quoted," he explained.
"He’s managed the debt very well and he’s used it to prop up the income; however, it is still a drag on performance and we therefore prefer others."
Brown points to FE Alpha Manager Nick Train’s Finsbury Growth & Income
investment trust, James Henderson’s Lowland Investment Company
and Mark Barnett’s
Perpetual Income & Growth portfolio as his preferred choices.