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How Neil Woodford beat all other UK equity income funds

Photo: Woodford Funds. Fair Use.

Neil Woodford has had his critics lately, but now he deserves a slap on the back and hearty birthday congratulations. The dividend hero has been running his flagship CF Woodford Equity fund for three years, and has once again confirmed his stellar reputation.

Happy third birthday

I have been sent figures by fund platform Chelsea Financial Services showing that Neil Woodford is top of the UK equity income tree over three years. Incredibly, he is first out of 79 funds in the sector, delivering growth of 38.79% over the period, against an average return of 25.81%. Worst performer, Allianz UK Equity income, grew just 16.13%, less than half his return.

Our favourite star fund manager has done it again. That’s despite slipping in the past 12 months, when he returned 14.2%, against a sector average of 18.2% and his other vehicle Patient Capital Trust stalled. His reputation is such that the haters are waiting to pounce. So why has CF Woodford Equity Income done so well? Helpfully, in the spirit of transparency, he publishes his full portfolio holdings and one thing quickly becomes clear: Woodford is his own man.

Lonely are the brave

In most equity income funds, the same names feature again and again, notably oil majors BP and Royal Dutch Shell, HSBC Holdings and Lloyds Banking Group, pharmaceuticals AstraZeneca and GlaxoSmithKline, and tobacco stocks British American Tobacco and Imperial Brands Group. Most managers like to play it safe. Invest in those and you won’t be too far off the benchmark, and will keep your job. Woodford doesn’t play that game.

Only four of these companies feature among the 131 stocks in his portfolio: AstraZeneca in first place, Imperial Brands (2), British American Tobacco (5) and Lloyds (11). Woodford has snubbed plenty of other big names: BP, Diageo, GlaxoSmithKline, Shell, Unilever and Vodafone Group may number among the 10 largest stocks on the FTSE 100 but do not merit a place in his fund. Brave man.

No hugs

Woodford’s top 10 holdings include plenty of lesser names, with medical and pharmaceuticals firms Abbvie, ProthenaTheravance Biopharma and the unquoted Benevolent AI all prominent in the top 10. Woodford is no closet benchmark hugger.

Not every stock pick has paid off, for example, top 10 holding Capita is down 50% over the past 12 months. Prothena is up only 6% over three years, Legal & General is up just 9%. However, others have done better, Abbvie is up 30% over three years, Imperial Brands, Theravance Biopharma and Provident Financial are all up 37% and British American Tobacco is up 53%.

You win again

However, the real excitement comes lower down, with the lesser names providing a number of growth heroes including PurpleBricks, up 211% in the last 12 months, Stobart Group is up 116% in a year, and best of all Burford Capital, up 187% over one year and 677% over three.

As you might expect from a portfolio with 131 stocks in it, Woodford has also backed some losers, sluggards and no-shows, he has just backed fewer of them than other managers, and more of the good guys. The performance chart does not lie. Woodford is still a winner.

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Harvey Jones holds units in CF Woodford Equity income but has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca, BP, Diageo, Imperial Brands, Lloyds Banking Group, and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.