The major news this week had nothing to do with finance, as Europe was rocked by another terrorist attack in Brussels. 
As is to be expected, certain parts of the equity market were hit hard as a result of the bombings such as travel stocks.
Elsewhere, the price of oil has once again nose-dived after the US Energy Information Administration said crude oil inventories surged up by 9.4 million barrels in the week ending 18 March, reaching historically high levels for this time of year, and much more than economists had expected.
This (as so often has been the case recently) has caused another rout in equities, with the FTSE 100 currently trading at 6,140 having been closer to 6,250 at the start of the week.
All told, it’s a pretty depressing way to start Easter – but at least we have a four day weekend!
Outside of market movements, our access to FE Analytics and couple of pieces of fund specific news has kept us very busy this week. Here, we run through a selection of our favourite articles of the past seven days.
“It’s still early days” – Woodford on Patient Capital’s lacklustre first year
We start off with the Woodford Patient Capital Trust’s first annual report, which was covered by news editor Alex Paget.
The trust was the largest launch of its kind when star manager Woodford brought it to market in April last year, with investors clamouring to gain exposure to his stellar long-term track record, the trust’s focus on early stage companies and its innovative fee structure. However, as shareholders would have noticed, it’s not been a great first year for the closed-ended fund.
While shares in Woodford Patient Capital initially jumped to a substantial premium to NAV (peaking at 15 per cent), a fall in sentiment towards risk assets, poor NAV performance and negative press towards one of its largest holdings have caused that premium to fall to a slight discount.
Performance of trust versus sector and index since launch
Source: FE Analytics
As a result, Woodford Patient Capital has lost 11.5 per cent since launch – meaning it has underperformed relative to both the FTSE All Share and its IT UK All Companies sector over that time.
Woodford argues that investors should realise the portfolio is designed as a long-term vehicle.
“Clearly, we would prefer to be reporting on a period of positive progress for the portfolio in net asset value terms, but it is still very early days for this long-term strategy and performance should be viewed in the context of the overall market environment since launch,” Woodford said.
However, Charles Cade says that it is no surprise people have been selling their shares and warned the discount could still widen further over the shorter term.
“If you are buying for the longer term, then now may be an attractive time to buy, but the question is what may happen to the shares over the shorter term.”
“Of course, the name of the trust gives it away and I have sympathy with Woodford’s view that the trust’s performance shouldn’t be judged over one year. Inevitably, though, that is what many investors will do.”
Should you be worried by GARS’ poor year?
This was another article, which was craftily put together by senior reporter Daniel Lanyon, highlighting a highly popular fund that has been through a difficult year.
Standard Life Investments Global Absolute Return is the largest UK based fund at a whopping £25bn, with investors piling into the portfolio in the hope their capital is protected against the worst the market has to offer.
However, data shows that gilts, equities and cash have all beaten GARS over the past year – a period that has seen some large drawdowns and volatility in nearly all asset classes.
A spokesperson for the fund said that investors need not worry about its losses, though.
"Against a volatile macro backdrop over the last year, GARS actually behaved as we would have expected it to do. It fell far less than equity markets from peak to trough, as portfolio diversifiers helped to cushion the blow from equity, credit and other risk-on type positions. We are tasked with seeking to generate substantial returns on a 3 year rolling time horizon."
The large majority of fund pickers Lanyon spoke to also agreed that GARS can still be viewed as a core long term holding.
Steve Lennon, investment manager at Parmenion, says it is not the first period during which the performance of GARS has been “unspectacular”.
However, he says it is worth remembering that GARS targets returns of LIBOR plus 5 per cent with volatility of less than half of global equities over rolling three years periods.
“The fund has achieved these targets over the vast majority of periods since launch. I would also highlight that the attribution analysis shows a roughly equal number of positively and negatively contributing ideas which provides some comfort that the fund continues to be suitably diverse without single trades dominating returns.”
UK equity income funds smash trusts for dividend pay-outs
The commonly held view is that closed-ended funds are better options for income investors than OEICs or unit trusts, as they have the ability to build up revenue reserves in the hope of increasing their dividend on a consistent basis – a feature managers of open-ended funds don’t have.
Nevertheless, in this study by Paget, we found that this has meant trusts have actually paid out less in total dividends that funds in the UK equity income space over the past five years.
Annual and Cumulative distributions since 2011
Source: FE Analytics
According to FE Analytics, the average fund in the IA UK Equity Income sector paid out £2,502.24 in dividends on a £10,000 initial investment between 2011 and 2015. The average UK Equity Income trust, however, paid out £2,384.84 on £10,000 over that time period.
Also, while the large majority of trusts in the IT UK Equity Income sector have maintained an unbroken dividend track record over five years, just 20 per cent of equivalent open-ended funds have achieved that feat. However, taken together, the ‘average’ fund in the IA UK Equity Income sector increased its distribution in 2012, 2013, 2014 and 2015.
There were exceptions to the rule, though, as British & American IT has been the highest dividend paying portfolio when you combine the two sectors together.
The UK Equity Income funds advisers say every investor should hold
UK equity income is by far and away one of the most popular asset classes with investors, so in this article by reporter Lauren Mason, we took a look at the four funds in the space that the AFI panel members believe every investor should hold.
The AFI panel consists of a selection of leading financial advice firms, all of which choose a portfolio of funds for each themed index; they are each allowed to choose a maximum of 10 holdings which are weighted by the panellists themselves.
FE then aggregates these portfolios to produce an overall weightings list for the indices. The four funds that feature in the AFI Aggressive, AFI Balanced and AFI Cautious portfolios are CF Woodford Equity Income, Fidelity MoneyBuilder Dividend, JOHCM UK Equity Income and Majedie UK Income.
Interestingly, despite the fact that Woodford Investment Management was only established less than two years ago, the firm has been the second most popular fund group in the Balanced index (which represents a pension portfolio for people in their 30s with a retirement age of 65) and the fifth most popular in the Aggressive index (which represents a pension portfolio for people in their 20s with the same retirement age) over the last two rebalances.
The CF Woodford Equity Income fund itself is the third most popular fund in the cautious index (a hypothetical pension portfolio for those in their 40s) over the last two rebalances.