The fund is managed by Neil Woodford, who has earned a reputation as one of the stars in the equity income space, and this is reflected by the huge amount of money this fund has attracted. Woodford's core belief is that markets are inefficient, and that companies are often undervalued by markets which over react to short-term events, rather than focusing on the firm's long-term outlook.
His main aim is to identify and invest in companies that are trading below their true long-term value and will appreciate as the markets recognise this. As well as studying specific stocks Woodford takes a view on macro economic trends and invests in accordance with his market forecasts and isn't afraid to disagree with the consensus outlook and will often take an opposing view to the one expressed in the markets.
Performance– 31 January 1995 to 21 April 2010
Source: Financial Express Analytics
Style and Strategy
Neil Woodford combines both top down macroeconomic analysis and bottom up stock specific research to identify investment opportunities. Along with the other investment managers and analysts at Invesco Perpetual, Woodford studies macroeconomic trends and data to come up with a series of thematic views on future economic developments and how this relates to sectors and market movements in general. As well as using this information to position the fund, he also uses these views to guide his research and analysis of specific companies, studying their fundamentals to find those he thinks will benefit from his expected version of the future.
While the fund is focused on UK equities it takes a truly global view, taking advantage of the international diversity in sources of earnings of UK listed companies to gain exposure to overseas economies and trends. Woodford is often contrarian in his outlook and takes positions against market expectations.
The fund is nominally benchmarked to the FTSE All Share index and this reasonably describes its investment universe, although the fund can also hold up to 10 per cent in international equities and fixed income securities. The fund is managed in an unconstrained style however, and often deviates significantly from the index in terms of position weighting.
Holdings and Breakdowns - as of 31 March 2010
| Top 10 Holdings |
% Weighting |
| ASTRAZENECA PLC |
7.80 |
| GLAXOSMITHKLINE | 7.60 |
| REYNOLDS AMERICAN INC |
6.10 |
| BRITISH AMERICAN TOBACCO |
5.80 |
| BG GROUP |
5.30 |
| VODAFONE GROUP |
5.00 |
| TESCO | 4.60 |
| NATIONAL GRID |
4.40 |
| IMPERIAL TOBACCO GROUP |
4.00 |
| BT GROUP |
3.50 |
| Top 10 total percentage weighting |
54.10 |
Source: Financial Express Analytics
| Sector Breakdown |
% Weighting |
| CONSUMER PRODUCTS |
25.60 |
| HEALTH CARE |
17.80 |
| UTILITIES | 15.60 |
| INDUSTRIALS | 11.30 |
| TELCOM, MEDIA, TECHNOLOGY |
9.90 |
| SERVICES |
6.60 |
| FINANCIAL |
6.50 |
| OIL&GAS |
5.40 |
| MONEY MARKET |
1.30 |
Source: Financial Express Analytics
What to Expect
The fund has an excellent track record, having outperformed both the FTSE All Share and the IMA UK Equity Income and Growth sector every year from 2000 to 2008. In 2009 and in 2010 to date returns have been slightly disappointing, but they reflect Woodford’s negative outlook on the UK which may yet prove prescient. It also highlights his willingness to against the popular view, over ten years his correlation to the index has been much lower than the average in the IMA UK Equity Income and Growth sector. The fund has displayed lower risk than both sector and index over the last three years although these differences are much smaller over a longer ten year time horizon. The fund has lower downside risk over both the long and short-term.
Suitability
The fund is often seen as a core holding for many investors wishing to gain exposure to UK Equities, with belief in Neil Woodford being the main reason. The fund actually offers fairly unconventional exposure to the FTSE All Share and many of Woodfords decisions lead to short term underperformance and payoff over longer time periods. Investors with long time horizons and who have faith in the fund manager’s ability to repeat his past performance are most suited to this fund.
AFI Comment
"The impressive long-term track record of Neil Woodford speaks for itself. He has demonstrated over the years that he gets far more the of the big decisions right than wrong, even when that means going against the herd. He has avoided banks and cyclicals which have performed so strongly over the last 12 months causing his fund to underperform. When buying this fund you therefore have to understand why he is staying with defensive stocks," says Graham Toone of AFH Wealth Management.
He adds: "Neil strongly believes that the UK economy faces a number of huge challenges that will mean continued difficult times ahead. Against this background, he expects domestic economic growth to be weak for an extended period. Consequently, his fund is focused on those defensive companies that will be better able to weather such a difficult environment. Neil believes that some of the more economically sensitive sectors that have led the UK market during the recent rally are trading on valuations that imply overly optimistic earnings expectations given the difficult conditions that he envisages."