2016 has been tough on celebrities, and that includes celebrity fund managers. The most famous of all, Neil Woodford, is physically hale and hearty but the same can’t be said for his funds, which have suffered an annus horribilis.
Fame, fame, fatal fame
Woodford’s performance has been so impressive over the last 25 years or so that it’s easy to forget even he can slip up from time to time. The last 12 months will number among those times.
His flagship fund, CF Woodford Equity Income attracted, record-breaking funds following launch in June 2014, and is already worth more than £9.5bn. It would have been worth a fair bit more than that if it hadn’t just suffered a horrible year… or horrible by Woodford’s high standards.
And we must hold him to high standards, because those are what investors expect, and his eponymous asset management company Woodford Investment Management lives and dies by them. His die-hard fans would have a expected a better return than 3.12% over the last 12 months, in a year when the HSBC FTSE 100 Index tracker returned 17.5%.
The main reason is the lack of commodity stocks in his portfolio, particularly the miners, with big FTSE 100 names such as Anglo American and Glencore rising 300% and 200% respectively this year, and BHP Billiton, Rio Tinto and Fresnillo close behind.
This doesn’t worry me. The commodity sector is unlikely to repeat this year’s blazing recovery so Woodford could easily swing back in favour, as he’s always done in the past. More worryingly, he’s been hit by individual stock-picking flops, notably outsourcing specialist Capita (down 60%, the FTSE 100’s worst performer) and retailer Next (down 30%). But we all have some of those.
The great man has another self-named fund, investment trust Woodford Patient Capital Trust (LSE: WPCT), and this has also performed badly, falling 10% over the past 12 months. The portfolio has also included some bad calls, notably NorthWest Biotherapeutics, down more than 90%.
He’ll be back
Woodford has also been criticised for his decision to scrap staff bonuses, claiming they could dangerously distort behaviour, encouraging misconduct and short-termism. He isn’t picking staff pockets, they’ll be given higher salaries instead. But it does look odd given that he’s just handed himself £7.2m in profit share after company profits trebled to £35.5m in the year to March 2016. He may not have lost his investment touch, but his feel for public relations has gone awry.
I hold units in CF Woodford Equity Income and while I’m disappointed by this year’s underperformance, I will NOT be selling. Woodford has fallen out of favour before, during the technology and banking stock rallies, but the world has always swung round to his way of thinking. If you want a fund that keeps up with the market year after year, then buy a low-cost tracker.
In fact, a passive tracker and active Woodford make a good mix. The HSBC FTSE 100 Index may have thrashed him over the last 12 months, but over the previous 12 months it fell 2.25%, while Woodford’s fund rose 16.8%. That’s what diversification does for you. The great man will be back: 2017 could be his year.
Harvey Jones holds CF Woodford Equity Income and HSBC FTSE 100 Index, but has no position in any shares mentioned. The Motley Fool UK has recommended Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.