Neil Woodford used to be revered as one of the UK’s top fund managers, a reputation he earned over several decades. Indeed, during the 25 years he was running Invesco Perpetual’s High Income fund, he turned every £1,000 invested into around £23,000, smashing the performance of his peer group over the same period.
When he left Invesco in 2013 to set up his own fund management outfit, investors initially jumped at the chance to invest alongside one of the best fund managers in the City.
Unfortunately since then, his star has faded. The new flagship fund, the Woodford Equity Income fund has underperformed its peer group by around 27% over the past three years and is ranked 248 out of 249 equity income funds covered by FE Trustnet.
However, I believe that for long-term investors, Woodford’s offering is still attractive. Here are the three reasons why.
Woodford built his reputation by being a contrarian investor. One side effect of this style of investing is that you look brilliant when it goes right, but when it goes wrong the market quickly turns against you.
As valuations in some sectors have gotten out of hand, Woodford has been sticking to his contrarian nature, buying out-of-favour income stocks. The strategy hasn’t worked the past few years, but there’s plenty of data that shows over the long term, investing in dividends is hugely lucrative. The 3.4% dividend yield on offer from the Equity Income fund is also highly attractive when compared to interest rates available today.
The benefits of using a contrarian income strategy have started to show through in recent months. UK stocks are currently haunted by the spectre of Brexit and investors are no longer willing to pay a premium for growth in this uncertain market.
As a result, defensive income stocks are back in fashion. The Woodford Equity Income fund has outperformed the UK All Share index over the past six months, not by much (1.6%), but enough to put it in the top third of UK equity income funds (when ranked in terms of performance).
Investing in the future
The final reason why I think Neil Woodford could help you retire more comfortably is the fact that a portion of his portfolio is devoted to unlisted stocks. Investing in private businesses is risky, but it’s also quite lucrative if you get it right. Woodford has a history of successfully investing in private companies, and it’s this edge that has helped him outperform over the long term.
With this being the case, these private investments in high-tech startups may not look like much today, but history shows that having some exposure to these companies leads to outsized returns.
So overall, while Woodford might have fallen out of favour with investors over the past three years, I think the fund manager’s dividend focus, contrarian nature and private investing means that, over the long term, his fund offerings will produce steady returns for investors. Returns that could help you top up your State Pension in retirement.
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Rupert Hargreaves owns no share 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.