Three reasons I’d swap Neil Woodford for a FTSE 100 tracker

Harvey Jones has been a loyal supporter of Neil Woodford but even he is starting to consider a FTSE 100 (INDEXFTSE: UKX) tracker instead.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I look at my Stocks and Shares ISA portfolio of investment funds it is a sea of blue, which is my favourite colour because this means they’re all in profit. Well, nearly all. Of the 13 funds assembled over the past decade or two, one sticks out like a big fat red sore thumb.

Unlucky 13 is CF Woodford Equity Income. Ace fund manager Neil Woodford was supposed to head the pack, not trail it. Mr Blue, not Mr Red. 

Mr Wrong

I first bought units in his fund in January 2015, with a couple of small top-ups later that year. After more than four years, I am in the red by 0.16%. That is only a tiny loss because I was lucky enough to get in when Mr Woodford still delivered.

I’ve stayed loyal and fought his corner in these pages. In December, I valiantly tipped him to fight back in 2019. Here are three reasons why I’m beginning to lose heart.

1. He deserves to be relegated

Fund management is like football management: reputations rest on results. There is a difference, though. Football managers pay for bad performance with their job. As owner manager, Woodford stays in post even as punters walk out of the door. His flagship fund peaked at £10.2bn in May 2017, today it manages just £4.3bn.

Recent results have been woeful. Trustnet.com figures show that over three years, the UK All Companies sector returned 28.9%. Woodford fell 7.2%. As for fighting back in 2019, forget it. His benchmark sector is up 8.1%, he is down 1.2%. In Premier League terms, Woodford has a Manchester City profile, and Huddersfield form.

2. He’s destroyed my faith in star managers

My faith in star managers has never been that strong, I have seen too many enjoy a day or two in the spotlight, then fade. Typically, I prefer trackers for core markets like the UK and US.

Neil Woodford was the great exception after smashing markets for 25 years, and dodging the dotcom crash and banking crisis. Now it turns out he’s fallible after all. Every manager can expect the odd stock picking disaster but he’s had too many lately.

Do I want to hold a fund that still has a 5% stake in doorstep lender Provident Financial? That’s a stock I wouldn’t touch myself, yet he owns a quarter of the calamity and is backing a £1.3bn takeover bid to buy the rest of it.

And don’t get me started on misguided investment trust foray Woodford Patient Capital. Luckily, I dodged that bullet.

3. Trackers charge less

There is another reason I prefer trackers – their fees are so much lower. Thankfully, actively-managed fund fees have been driven from the days when you paid 5.25% upfront, and up to 1.75% a year. Woodford Equity Income has zero initial fee, and an annual charge of just 0.75%.

However, iShares Core FTSE 100 ETF has an annual charge of just 0.07%. Say you invest £10,000 and both funds grow 5% a year on average over 20 years. With Woodford, you would have £22,898 but £26,181 with the ETF. That’s £3,283 more due to charges alone.

Of course Woodford might justify the higher fee by storming back into form. I’m holding on, just in case, but I’m not too hopeful. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I've come across -- 10.7% -- but I'm…

Read more »

Investing Articles

Up 81%, can this FTSE 100 turnaround share keep surging?

This recovering retailer has been one of the FTSE's greatest performers over the past year. Royston Wild considers whether it…

Read more »

Happy couple showing relief at news
Investing Articles

£10,000 in savings? I’d buy 4 passive income shares to target a £100 per week second income!

By buying passive income shares today, I have a great chance to eventually make life-changing wealth. Here's how I'd invest…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

I think this may be an unmissable chance to buy an oversold UK share before it rallies hard

Harvey Jones piled into this beaten down UK share because it looks cheap and offers a sky-high yield. Now he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’d invest £500 a month in shares to target a £29,000 second income

Investing in shares is a tried-and-tested way to build a second income. Our writer explains how he’d do it, starting…

Read more »

Investing Articles

Marks and Spencer’s share price rises almost 10% on results day – should I buy?

Adjusted earnings up 45% -- no wonder the Marks and Spencer share price is flying. But there may be much…

Read more »