Investors Warned Not to Panic Sell Woodford

Following the star income fund manager's shock departure from Invesco Perpetual, we ask financial advisers and investment professionals: what should investors do?

Emma Wall 16 October, 2013 | 10:55AM
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Millions of investors have entrusted their hard earned savings to Neil Woodford's Invesco Perpetual Income fund - and been handsomely rewarded. If you had invested £1,000 in the £10.6 billion fund a decade ago you would have nearly quadrupled your cash. 

Similarly those who had invested in the £14 billion High Income fund would have seen their holding increase by 20% this year alone. 

Which begs the question - can Woodford's successor match these figures? The official line from Invesco is that Mark Barnett is "is an exceptional investor who has the same active, valuation-driven investment approach and long-term focus" as Woodford. 

The funds will not change their objective, and Invesco is keen to press that all of the members of the UK equities team share a common investment philosophy and approach. But to lose Woodford is a blow, and outflows should be expected. 

However, as Woodford will remain as sole manager on the Income and High Income until his departure date on April 29, should investors sell now, sell later, or put their trust in Barnett?

Mark Dampier, Hargreaves Lansdown

Mark’s performance has actually been better than Neil’s over the last couple of years. His two investment trusts, Keystone (KIT) and Perpetual Income & Growth Investment (PLI) have posted significant returns. Mark is not afraid to be his own man, adding exposure to banks before a lot of his peers. But Neil’s investment process is his own, and replicating his career will be hard.

Neil has been there for such a long time there are also questions about his influence over the rest of the equity team, if you work alongside someone inspiring it can push a team onto better things – if you take that influence away what happens?

There will be unavoidable outflows – Neil has fans and they will follow wherever he goes. But the interesting question is what will happen to the cash that leaves immediately? Neil will not launch his own offering until next year and there are not many funds that can rival Woodford’s record, and those that can are almost at capacity.

Personally, I shall not be selling out just yet. I think there is no particular rush as Neil will be sole manager until his departure. But it is worth reviewing the situation once it becomes clear exactly what his new venture will offer.

Brian Dennehy, FundExpert

Neil’s success over the last 15 years has to a large extent been based on one huge bet, what we have called the biggest and longest bet in fund management history – a consistently large overweight in defensives, in particular utilities, tobacco, and pharmaceuticals.  Would any other manager have had the foresight to begin this strategy? And the fortitude to continue with it over such a prolonged period? I don’t think so.

Mark manages Invesco Perpetual UK Strategic Income, an outstanding fund.  But it is a fund of just £265 million.  This contrasts hugely with £14 billion for Invesco Perpetual High Income and £10.6 billion for Invesco Perpetual Income, both managed by Neil.  And the top 10 holdings for Mark do appear to reflect “the hand of Woodford”.  What happens without that guiding hand?  It is a huge unknown for investors.

The Neil Woodford funds are outstanding, and are not going to become poor funds overnight.  Nonetheless, there will be a hullabaloo about this for months to come and investors should consider what action to take. If an investor holds no more than 10% of their portfolio value in Woodford funds, there is no need to panic. If more than 10% is held, alternatives should be considered.

Philippa Gee, Philippa Gee Wealth Management

My view is that there is no need for immediate overreaction; however it does raise the issue of moving assets as there are plenty of alternative funds to consider. I would suggest that if you are worried, to move from the Income fund to an equity income tracker fund would mean that you retain your allocation to the sector but avoid any 'people' risk until the dust has settled. There could be some further fund manager moves in the sector, so it would be helpful to take a step back while the changes happen and using a tracker could be a useful way of doing this.

Investments may be for the long-term but they are not for a life-time and therefore this is an excellent and exciting opportunity for investors to reconsider their approach.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Edinburgh Investment Ord664.08 GBP1.08Rating
Invesco Distribution UK Acc143.74 GBP0.16Rating
Invesco Monthly Inc Plus UK Acc391.55 GBP0.01Rating
Invesco UK Eq High Inc UK Inc338.71 GBP0.57Rating
Invesco UK Equity Inc UK Inc1,342.19 GBP0.51Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar