Neil Woodford Launches New High Income Fund

ASK THE EXPERT: Morningstar analyst Peter Brunt gives his verdict on the new Woodford Income Focus fund due to launch in March 

Emma Wall 1 February, 2017 | 10:38AM
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Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Senior Fund Analyst, Peter Brunt, to discuss the new Woodford Fund launch.

Hi, Pete.

Peter Brunt: Good morning, Emma.

Wall: So, there will be a new Woodford fund. We have this confirmed that it will be launching in March. It's going to be called Woodford Focus Income and it's going to target that higher income space. We did have some inclination this is going to happen. He surveyed his shareholders in June to see if they would be interested in a fund that targeted a higher level of income. What do we know so far?

Brunt: That's right. So, we know that it's going to be targeting 5 pence in the pound upon its launch. They are going to be targeting 120% dividend yield premium on the FTSE All-Share. It's going to be invested predominantly in U.K. equities but with the freedom to go globally. They are not going to be following the 18-20 U.K.-overseas demands of the IA U.K. Equity Income sector. So, they won't be classified in that sector.

Wall: Now, 5 pence in the pound is a pretty punchy target, especially considering that we are in a low-growth, low-yield environment and also considering that the original fund, Woodford Equity Income, hasn't actually managed to hit its target either, has it?

Brunt: Well, I mean, it has, but currently it isn't. It's yielding below the market currently. There are a number of reasons for that. But one of the facts of the fund will be that it's not going to invest in unquoted companies and that's one of the reasons why the current fund that it has out in the market doesn't yield because it has a significant amount invested in small-cap companies that typically yield slightly lower and in unquoted companies. So, this new fund, as we understand it, will be not investing in unquoteds. We probably expect it to have a slightly larger tilt to companies capitalized further on the cap scale.

Wall: And looking then at this space, it's not the first time that Woodford has run a higher-income portfolio, is it? He has form in this sector.

Brunt: He has form in this sector. He is one of the biggest names in the sector. He has one of the longest track records in the sector running the High Income and Income funds at Invesco Perpetual from back in the late 80s, early 90s, up to 2013. During that time, those funds did yield higher than market at times; they also were below the market yield at times. He didn't really manage those funds to hit the 110% yield requirement. So, this probably does mark a slightly change in his approach where he is, as we understand it, actively targeting 120% yield.

Wall: Now, we expect in this world of low income where people are clamoring for yield that this will be a popular fund launch come March. His last two fund launches have proved so. What can say about the amount of money he could be potentially running here because we do as a ratings agency take into consideration the amount of money that one individual is responsible for?

Brunt: Yeah, good question. Well, I mean, when he was at Invesco Perpetual, he ran over 30 billion in one strategy. Currently, he is managing over 15 billion at Woodford Investment Management where it's a little bit different as he, as I mentioned, is invested more in smaller-cap companies. So, it's something that we do keep a closer eye on and we are more aware of I think this new fund launch should it not be invested in unquoted, as I said, we probably imagine it to be more scalable as a result. So, something to keep an eye on, but we can't really have a firm word until we see the fund launched.

Wall: Pete, thank you very much.

Brunt: My pleasure. Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Invesco UK Eq High Inc UK Inc337.91 GBP0.66Rating
LF Equity Income A Sterling Acc0.94 GBP0.00

About Author

Emma Wall  is former Senior International Editor for Morningstar

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