Britain’s best-known fund manager Neil Woodford has come in for a lot of flak in recent weeks. There’s been a rising tide of criticism from investors in his funds and media commentators. Indeed, some have gone as far as to ask whether one of the country’s most successful and longest-serving fund managers has finally lost the plot.
Impressive long-term record
In a two-and-a-half decade career at Invesco Perpetual, Woodford built an impressive record, delivering an annualised compound return of over 14%, outperforming the wider market by about 5% a year.
Having left Invesco to form his own fund management business in 2014, many of his loyal followers switched their investment into his new flagship Woodford Equity Income fund. They weren’t disappointed, with the fund ranking top of the UK equity income sector over its first year. It was business as usual.
Big hits to big holdings
However, it’s been a very different story over the last 12 months. According to fund tracker Trustnet, the Woodford Equity Income fund sits bottom of 84 funds in the sector and is the only one to have posted a negative return over the period.
The performance has been particularly impacted by recent big hits to some of his biggest blue-chip conviction bets, which have also hurt his Income Focus fund that launched just a few months ago.
His largest holding Astra Zeneca (over 8% of his Equity Income fund) suffered its biggest ever one-day fall in July, plunging 16% after the failure of a key cancer treatment trial. This was swiftly followed by a 9% hit to Imperial Brands — another top five holding — after the US Food and Drugs Administration announced plans to slash nicotine levels in cigarettes. Last but not least, fellow top five holding Provident Financial crashed 66% after releasing a disastrous profit warning.
Meanwhile, Woodford’s growth-oriented Patient Capital Trust, which launched in April 2015 at 100p a share, is currently trading at 97p, leading one wag over at FT Alphaville to comment: “Think it’s being renamed Very Patient Capital.” Its portfolio of “disruptive early-stage and early-growth companies” (many of which feature as a long tail of small holdings in his Equity Income fund) has also seen a number of spectacular blow-ups — Halosource, RM2 International and Sphere Medical to name but three.
Sticking to his guns
Despite the recent criticism, Woodford is sticking to his guns. He remains convinced of the attractions of AstraZeneca, Imperial Brands and, yes, even Provident Financial and believes “their share prices are sitting way below their fundamental value.” Likewise, he’s unperturbed by the share price of Patient Capital Trust. He believes the portfolio is “in excellent shape” and remains “very confident in the trust’s long-term return outlook.”
Of course, Woodford has underperformed at times in the past, picked some stocks that didn’t work out and had critics who suggested he’d lost the plot. “What’s he doing buying dull tobacco stocks when everyone knows dotcom businesses are the place to be?” “What’s he doing shunning banks when they’re delivering such good returns [pre-2008]?” History has provided the answer to those questions. And it suggests that the cries of “you don’t know what you’re doing” currently ringing out from some quarters will likely prove well wide of the mark.
