But are they right...?
Neil Woodford has become so totemic among equity income investors that he seems almost beyond criticism. Advisers and analysts adore his two best-known funds, Invesco-Perpetual Income and High Income, even when they have been performing poorly. That's a measure of the man's reputation, and good news for him, because his funds have performed very poorly lately.
Over the past 12 months, his Income fund grew 11% against 30% for the FTSE All-Share, while High Income underperformed the UK Equity Income & Growth sector, growing just 11% against 22%, according to Trustnet.com. Both funds are bottom quartile over that period.
That is hardly the performance of an investment giant. So is Woodford finished, a broken man, a shattered remnant of the one-man investment behemoth he once was?
RosiesDad asks, RosiesDad gets
I have to declare an interest here. I have around 5% of my invested wealth to Invesco-Perpetual Income, which I use as a counterbalance to my portfolio of direct equities. I'm not buying any more units in his trust right now (I've got enough), but I'm certainly not selling either.
When I mentioned this in a recent article, a Foolish fellow calling himself RosiesDad posted the following comment: "Harvey, I'm interested to see you hold Invesco-Perpetual Income. How about some more articles about investing into funds for income? I'd be interested to know how you think the fund has performed recently and how it will perform in 2010 against its peers."
As I have a financial stake in the matter, I'm interested as well. And so will plenty of you (even those who wisely shun most actively managed funds), because Woodford currently manages an astonishing one-third of all the money in UK equity income and growth sectors.
Fave raves
Woodford has been managing his High Income since October 1988 and his Income fund since October 1990, and his investment approach hasn't changed in that time. He's a classic value manager, looking for companies whose share prices have been marked down yet offer the prospects of sustainable growth over the long-term.
His funds invest primarily in the UK, and are crammed with dividend-paying faves such as GlaxoSmithKline (LSE: GSK), AstraZeneca (LSE: AZN), BG Group (LSE: BG), British American Tobacco (LSE: BATS), Vodafone (LSE: VOD), Tesco (LSE: TSCO), National Grid (LSE: NG), Imperial Tobacco Group (LSE: IMT) and BT Group (LSE: BT-A).
It is almost impossible to produce a more solid blue-chip line-up than that, yet Woodford underperformed the wider market by around 20% in 2009. So where did it all go wrong?
No boom = no bust
Well, the dash for trash didn't help. Woodford doesn't do trash, he does value, which is a different thing. Also, 2009 was a crazy investment year, and Woodford isn't crazy.
He was sober enough to avoid the even crazier dot.com boom, a rare example of independent thinking among fund managers, even though it put his reputation and job on the line. Last year's underperformance could be a good reason to invest in his fund at the moment, because 2010 is shaping up to be very different to last year.
Top fund manager, going cheap
Woodford has been cautious in recent months, arguing that the economy faces a rocky three or four years, and is now focusing on defensive sectors such as pharmaceuticals, tobacco, utilities, telecoms and aerospace and defence, where he senses value. He says companies in the sectors offer resilient earnings, enduring business models and sustainable dividend growth, something that isn't reflected in their share prices.
He also likes the fact that many of these businesses earn a significant part of their income overseas, which means his funds shouldn't become too reliant on the UK.
Crucially, he believes last year's winners are now overvalued, and will struggle to deliver their projected earnings growth. All of which seems pretty inarguable to me.
If you accept this line of thinking, now could be a good time to buy units in Woodford while he's going cheap. You will also get a yield of around 4%.
See Woodford for the trees
RosiesDad also asked how Woodford's funds are likely to perform against their peers in 2010. First, I would say that is too short a time-frame, even a dart-throwing monkey can have a good year, and proven fund managers are allowed the odd bad one.
Over the last 10 years, Woodford outperformed his peer group nine times, according to figures from Trustnet.com. I think we can forgive him that single bad year, especially since his funds grew 160% over that period, against just 70% for his peer group.
And he's got a smart haircut too
That doesn't mean he is the only manager worth considering in this sector, which has always attracted plenty of heavy hitters, including Carl Stick at Rathbone Income, Bill Mott at PSigma Income, or James Henderson, manager of investment trust Lowland Investment Company (LSE: LWI).
If you are heavily invested in this sector, I would recommend splitting your money between different fund managers, to benefit from their good years and offset their bad ones.
I've never met Neil Woodford, but I'm looking at his picture now, with his solid jaw and cropped hair, and he looks like a bloke you would like to have alongside you in a scrap. That's what I like to see in a man guarding 5% of my money.
More from Harvey Jones:
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