It’s no secret that star fund manager Neil Woodford is having a dreadful run at the moment.
A number of Woodford-owned stocks have crashed spectacularly over the last year or so and that has had a significant impact on the portfolio manager’s performance. First there was Provident Financial, which lost around 70% of its market capitalisation in the blink of an eye after a nasty profit warning. Then Saga, which dropped over 30% after it, too, warned on profits. Then there was Capita, which plummeted 50% in January after suspending its dividend. Furthermore, there’s also been a number of slow-burning performance detractors, which have declined more steadily, such as Imperial Brands and AA, which are down around 40% and 50%, respectively, over the last year.
Overall, Woodford has underperformed many of his peers dramatically over the last year and, as a result, many investors have withdrawn capital from Woodford Investment Management.
If you were hoping that the worst was over for Woodford, I have bad news. Yesterday, the portfolio manager suffered yet another blow to his funds. Here’s a look at his latest investing disaster.
Another blow
Step forward US biotech company Prothena. This is a stock that Woodford has considerable exposure to across all three of his funds. At the end of March, the stock was the third largest holding in his Patient Capital Trust with a 9.1% weighting, the seventh largest holding in his Equity Income fund, at 3.1% of the portfolio, and the 23rd largest holding in his Income Focus fund, with a weighting of 1.8%.
That kind of exposure is going to hurt Woodford’s performance. As of yesterday, Prothena shares crashed nearly 70% after the failure of a crucial drug trial. The company advised that trials of its key drug NEOD001 – designed to treat a rare disease called AL amyloidosis – were unsuccessful and that it was halting development of the drug. The market clearly didn’t like the news and sent the shares crashing from $37 to $12. Woodford’s team stated that the results of the trial were “undoubtedly a blow” and that it would be working with the company and its management team on its strategy. Woodford’s Patient Capital Trust fell over 10% yesterday.
So, after this latest debacle, is it time to finally ditch Neil Woodford?
I’m out
Personally, I redeemed my SIPP holding in Woodford’s Equity Income fund back in February. The main reason I sold the fund was that it no longer represented the style of portfolio I was looking for.
Equity income funds should have a focus on dividend stocks. This type of fund generally invests in blue-chip stocks and is designed to provide regular income along with some capital growth. To my mind, there’s no place for a risky biotech company such as Prothena which pays no dividend.
Prothena is a better fit for Woodford’s Patient Capital Trust which invests in disruptive, early-stage companies. However, I won’t be investing in this fund as the performance track record is poor and I believe there are better alternatives. For example, over three years, the trust has returned -27%. In comparison, a growth fund I highlighted over the weekend, the Marlborough UK Micro-Cap Growth fund, has returned 72% in that time.
