The South African-based financial services company recently downgraded Woodford's Invesco Perpetual Income and High Income funds to a "sell", citing concerns over the funds’ size. They have combined assets under management (AUM) of more than £20bn, according to FE data.
However, Shillito points out that there have been concerns over size for many years, and yet the manager has still been able to deliver consistent outperformance.
"It’s very, very dangerous to underestimate Neil Woodford (pictured)," he said. "He gets a regular bashing session every time the markets go up, and every time he seems to prove his critics wrong."
"The issue of fund size has been with us for some time, but personally I’m not overly concerned because the manager isn’t concerned. Yes, the fund house behind the marketing has a bearing, but Neil Woodford is not going to run a fund he doesn’t think can do well."
"£20bn is a lot of money, but there are plenty of institutional funds out there that are much, much bigger. They’re not looking for the same kind of returns as a retail fund, but the Invesco funds have performed very well."
According to FE data, Invesco Perpetual Income and High Income have beaten their IMA UK Equity Income sector average and FTSE All Share benchmark over three, five and 10 years.
They are top decile over the last decade, but have only marginally outperformed over the other two periods.
Performance of funds vs sector and index over 10yrs
Source: FE Analytics
Both funds are currently yielding around 3.6 per cent, which is below average for the sector.
However, a recent FE Trustnet study revealed that both are among the top-15 highest dividend payers in the sector of the last 10 years.
The funds’ records are even stronger once risk-adjusted returns using the Sharpe ratio are taken into account.
The ratio measures a fund's return relative to a notional risk-free investment – in this case, cash. The difference in returns is then divided by the fund's volatility.
Invesco Perpetual Income and High Income take the top-two positions in the sector over 10 years in terms of Sharpe ratio, and are top quartile over three and five years.
Shillito (pictured left) accepts that there are certain funds in the sector that will outperform Woodford's in rising markets, because they have greater flexibility.
He sees value in looking at alternatives to the Invesco portfolios, but says these are ideal core holdings for investors looking for income. He commented: "Would I sell the funds over these concerns? No. Would I trim my exposure? Maybe."
"There is an argument that the smaller, more nimble funds have more chance of outperforming [in up and down markets], but I wouldn’t remove the fund from our wholesale offering, because there are people who want a safer play."
Shillito advises investors to take criticism of industry stalwarts such as Woodford with a pinch of salt.
"Very often it’s more about marketing than the actual argument," he added.
Kerry Nelson, managing director of Nexus IFA, is of a similar opinion. She says she has no plans to sell Woodford’s funds, but does think their limited flexibility means investors should look to diversify their equity income exposure.
"I think it’s a little too soon to take a sell-stance – at this point I would say 'hold'."
"I’ve been mindful of this situation for about five years or so. While in the past I would have put all of my clients’ equity income exposure in Woodford, for the last five years I’ve been diversifying and looking to other funds as well."
"Part of this is because everything has become more global, but also because it can’t move as nimbly as it once could."
Neither Invesco Perpetual Income nor High Income have outperformed the All Share in a rising market since 2007. The latter has grown from £9.2bn to £11.9bn in the last three years.
As well as Woodford, in the UK Equity Income space Nelson rates Adrian Frost, who runs Artemis Income, and Carl Stick, who heads up Rathbone Income.
Paul Davis of Clear Financial Advice does not have any clients in Woodford’s funds, but says investors should be aware of their size.
"At the end of the day, it’s a very large fund," he said. "Like any fund that gets to that size, it has difficulty in making big changes – like a tanker in the sea, it can’t turn around when it pleases."
"Fund size is one of our considerations when looking at a fund. I’d always have concerns over how much it can manoeuvre, but it all comes down to what the client wants."
Thames River’s Gary Potter recently revealed his aversion to giant funds in an interview with FE Trustnet earlier this week.