Woodford Equity Income: 1 Year On

When Neil Woodford announced he was departing Invesco Perpetual panicked investors sold out of his equity income funds and billions of pounds moved into the new launch

Emma Wall 8 June, 2015 | 4:44PM
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It has been 12 months since Neil Woodford launched his Equity Income fund. Investors who had backed the star manager during his 25 year tenure at Invesco Perpetual waited patiently for eight months for Woodford to launch Equity Income following his shock exit from Invesco. But once the eponymous fund was available to retail investors, cash poured in at a record rate, taking the fund to billions under management in a matter of months.

Now, a year on, the fund sits at £6.2 billion, and has returned an impressive 18% since launch. Morningstar analysts rate the fund Bronze, and it sits on many ‘buy’ lists, recommended as a core holding. There have been a few hiccups along the way. At a dinner before the fund’s launch Woodford said that he would be investing in banks for the first time in a decade, confident that the worst of the banking crisis was behind the sector. Fast forward just four months and the income manager dropped HSBC (HSBA) like a hot potato, scared off by ever mounting fines levied at high street lenders.

“In recent weeks, I have started to become more concerned about one particular risk: that of ‘fine inflation’ in the banking industry,” Woodford said last September. “Clearly, banks have attracted many fines in the post-financial crisis world as regulators and policy-makers have cracked down on past and ongoing wrongdoings in the industry. The size of the fines, however, appears to be increasing.”

Banks aside, Woodford’s portfolio looks very familiar to those who have reaped the benefits from his style in the past – tobacco stocks, pharmaceuticals and a smattering of unlisted companies.

In February Woodford confirmed rumours that he would expand his interest in unlisted companies and launch an investment trust invested in start-ups. The Woodford Patient Capital Trust (WPCT) was launched in April and is already trading at an 8% premium due to demand.

Woodford Equity Income, What the Analysts Say

Neil Woodford’s eponymous fund offers investors exactly what they would expect from one of the UK’s most experienced equity-income managers, says Morningstar fund analyst Daniel Vaughan. 

Woodford is one of the most experienced UK equity-income managers. He has 33 years’ investment experience and has run UK equity-income funds in this style since 1988. His investment approach has been fully formed for many years and is strongly adhered to. The strategy of this fund is clear, set with the objective of generating a positive capital return over the long term and growing the income whilst offering capital preservation.

It is identical to the Invesco Perpetual Income funds he ran with high conviction, patience and passion. He has proved himself willing to stick to his strategy even during periods of poor performance. As a result, his long-term track record, which encompasses numerous market cycles, is strong. 

Woodford has proved more than capable of executing his strategy with conviction. His stewardship of investors' capital is not in doubt. However, while we have no tangible concerns, we are expressing some caution for now in the fund's rating given the start-up nature of the firm. We are initiating coverage with a Bronze rating.

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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About Author

Emma Wall  is former Senior International Editor for Morningstar