The unquoted biotechnology firm Stratified Medical was the biggest single contributor to the strong outperformance of CF Woodford Equity Income in 2015, according to a spokesman for FE Alpha Manager Neil Woodford (pictured), who heads the popular fund.
The £8.3bn CF Woodford Equity Income was a top decile performer in 2015, finishing sixth best out of the 80 funds in the IA UK Equity Income sector with a return of 15.9 per cent, compared to a sector average of 6.2 per cent and a small gain in the FTSE All Share of 0.98 per cent.
Performance of fund, sector and index in 2015
Source: FE Analytics
Woodford bought a stake of Stratified Medical, which uses artificial intelligence to try and maximise pharmaceutical research and development, towards the end of 2014 and it has most mostly soared since.
Although only making up an average 1.38 per cent of the portfolio its return of nearly 500 per cent in 2015, according to an independent valuation for Woodford Investment Management, added 2.86 percentage points to the funds return.
Prothena, which is listed on the NASDAQ, was the next biggest contributor after having rocketed 165 per cent in 2015 in part due to its ongoing success in its development of a Parkinson’s disease treatment following a tie-up with Swiss pharmaceutical giant Roche back in December 2013.
The late-stage clinical biotechnology stock was volatile throughout the year but remained one of the fund’s larger holdings – but outside Woodford’s top 10 - with an average weighting of 1.93 per cent.
It underwent a correction of more than 35 per cent as part of a broader market sell off in biotech stocks in the summer of 2015 and remains volatile. It is has currently made somewhat of recovery but since this has seen some renewed selling in recent weeks.
Woodford is most synonymous with blue chip equity income favourites, despite his longer term interest in small healthcare firms, and tobacco giants British American Tobacco and the - also US-listed - Reynolds American were also in the top five contributors to performance.
The former was also consistently one of Woodford’s holdings in 2015, with an average 7.01 per cent weighting in the portfolio and remains his largest positon today.
BT was the fifth most important driver of returns adding just under 1 percentage points to the total return after it had a strong year thanks to a push by the firm to acquire part of mobile operator EE which it is hoping will cater to a growing demand for bundle of fixed line and mobile services as well as paid-for TV and internet access.
In total Woodford’s five largest contributors, shown in the table below, contributed 10.8 percentage points of the 15.9 per cent clocked up in 2015.
Source: Woodford Investment Management, Source: FE Analytics
Performance contributions are calculated on a total return basis, including the impact of intra-period trading, gross of fees in sterling using closing prices. Stock returns can only be calculated where the position has been held by for the full period, according to Woodford.
While the fund has done very well against the FTSE All Share, this data reflects the value of Woodford’s ‘off-benchmark’ positions in driving returns.
In contrast to the biggest contributors, out of the five biggest detractors to Woodford’s performance, four were UK listed firms: Drax, Centrica, Game Digital and Rolls Royce.
The former, which saw its share price fall 36.54 per cent in 2015, had an average weighting of 2.17 per cent in Woodford’s portfolio. This translated into a 0.88 percentage point reduction for the fund’s performance.
NASDAQ listed Northwest Biotherapeutics took 0.42 of a percentage point away from performance after it was embroiled in accusations of financial misconduct that prompted its share price to plummet.
Source: Woodford Investment Management, FE Analytics
Woodford originally bought 28 per cent of the stock which included a stake for the Woodford Patient Capital investment trust in May 2015.
Woodford’s team are expecting a “difficult” year ahead for risk assets in 2016, his spokesman Mitchell Fraser-Jones says.
“At the same time, however, we have been becoming more cautious in our assessment of the global economic environment. As such, we do not believe a significant change to our investment strategy is warranted at this time. The shape of the portfolios remains well-suited to these conditions,” Fraser-Jones said.
“This year is shaping up to be a tough one for equity markets but we view the future with confidence,” he said.
CF Woodford Equity Income’s performance in 2015 was enough to keep the portfolio at the top of the sector overall since it launched in June 2014, a positon it has consistently held for most of this period.
According to FE Analytics, the fund has returned 20.47 per cent compared to an IA UK Equity Income sector average of 2.34 per cent a fall in the FTSE All Share of 5.94 per cent.
Performance of fund, sector and index since launch
Source: FE Analytics
CF Woodford Equity Income has a clean ongoing charges figure of 0.75 per cent.