Selling Woodford: What to Consider

Neil Woodford's move from Invesco to Oakley has had many investors looking for the door, but there are some significant tax implications to consider first

Holly Cook 19 December, 2013 | 10:44AM
Facebook Twitter LinkedIn

Star income manager Neil Woodford, who recently announced he will be leaving Invesco Perpetual after a quarter of a century with the firm, is to join Oakley Capital from May 1st. The news immediately sent the financial media into a bit of a flurry, but what does such a move mean for Woodford’s investors?

Morningstar analysts say that what’s of more immediate importance to end investors is what Woodford is doing at Invesco in his final months of managing some of the country’s most popular income funds. Invesco has seen well over £2 billion* outflows in the current quarter, largely as a result of news Woodford will leave in April 2014, and the manager has also been known to be selling off some of the smaller company holdings in his funds. Indeed, Morningstar's portfolio holdings data also show that Woodford has recently reduced stakes in all of his top ten stock holdings in his IP Income fund, including household investment names such as GlaxoSmithKline (GSK), BT Group (BT.A) and Imperial Tobacco (IMT), many of which have also been sold from his IP High Income fund.

Morningstar analysts have previously warned investors not to panic sell on the back Woodford's departure from Invesco, but for those who wish to follow the name there are some hurdles to overcome before they can exit the funds. With IP Income having returned 25% in 2013, IP High Income up 24% and Woodford's Edinburgh Investment Trust (EDIN) up 21%, investors have seen substantial capital gains this year. Given the longevity of Woodford's tenure and his loyal client base, any investor who has held these funds outside of a tax-efficient vehicle such as a pension or ISA may find they are subject to capital gains tax, thus automatically selling out of their fund holdings would not be an efficient tax-planning manoeuvre. A more tax efficient strategy in such a situation could be to sell over time and therefore Invesco may see investors continue to hold the funds despite the current uncertainty around their future.

Morningstar's fund and investment trust analysts will be meeting with Invesco to discuss the handover of management and the impact on the fund, until such time their fund ratings are under review.

It's as yet unclear whether Woodford followers will be able to invest with him at Oakley. The asset management firm today said it will provide the infrastructure to allow Woodford to manage retail and institutional clients' money from May onwards; it's likely that Oakley's role in Woodford’s new venture will be to facilitate some of the back-office tasks such as compliance and perhaps distribution, leaving the star manager to focus on managing clients’ money. Having previously held around 15% of his Invesco portfolio in unlisted companies, and with a reputation for enjoying investing in private equity, it's not hard to see why Woodford has chosen Oakley as his future destination. With a few product specialists having also recently announced their departure from Invesco, there’s speculation in the industry as to whether they'll be joining Woodford but arguably this manager is such a well-known name that he doesn’t need additional help in managing retail investors’ money.

For investors seeking alternatives to Woodford's Invesco funds, Morningstar previously published a list of five equity income alternatives but our analysts are keen to point out that with Woodford set to leave Invesco in April next year, there's time to make a decision and panic-selling is never a wise move.

*Asset flows data from Morningstar Direct: IP Income has seen outflows of £1.5 billion in the final quarter of 2013; IP High Income has seen outflows of £800 million.

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.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Edinburgh Investment Ord751.21 GBX-0.10Rating
Invesco UK Eq High Inc UK Inc335.61 GBP0.07Rating
Invesco UK Equity Inc UK Inc1,332.61 GBP0.03Rating

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures