In his words, Neil Woodford has just gone through a “fortnight from hell”, with more than £350m of losses according to the Sunday Telegraph.
But nothing works for ever, especially in fund management. What should you do? Sell or sit tight? And what are the alternatives? All this is explored here.
I’ve said a few times that Neil made the biggest and longest bet in fund management history and did so with extraordinary success. But nothing works for ever, especially in fund management.
Woodford Equity Income got off to a flying start. This often happens with new launches as the manager has the benefit of cash and a clean sheet of paper. But it began to go sour in 2016 (though Neil was certainly not alone in being caught out in 2016).
What we found particularly interesting with the recent launch of his Income Focus is that he sees opportunities now which he wants to exploit with this new fund, but sees limited over-lap between this fund and his giant, £9.6bn, Equity Income fund.
If these opportunities are so obvious why won’t they also be reflected in the Equity Income fund? Is the current fund too big, either not agile enough or too big for any adjustments to make much difference to the performance?
If I had to stay with Woodford I would be inclined to switch into the new launch, Income Focus.
Better still buy proven alternatives from other fund groups, your choice depending on whether you want income or total return.
Assuming an income objective two funds which stand out are:
Schroder Income: The fund has a very good track record, growing payouts in 8 of the last 10 calendar years, including 2016 (+6%). The fund seeks out companies that are not correctly valued by investors (not just cheap but under-valued without good reason). This is an approach that has served investors well.
JOHCM UK Equity Income: This fund has also managed to grow its payouts in 8 of the last 10 years. Payout growth for 2016 (+8.6%) was helped by sterling devaluation. As with the Schroder fund this also has a Value-bias and more than most in small and medium sized companies.
For those who don’t wish to take income, both the Schroder’s and JOHCM funds are outstanding for growth over shorter and longer periods. Both are top quintile over 10 years, and massively out-performed the existing Woodford Equity Income fund over 6 and 12 months.
ACTION FOR INVESTORS
Consider alternative funds….
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