Investors love a good story. And the investment fund industry loves to tell stories – in fact its very survival is dependent on the investing public buying into these stories.
Very few are worthy of attention, certainly not those surrounding new launches.
But Neil Woodford is an exception we cannot ignore. After all, he made the biggest and longest bet in fund management history! So, does the evidence suggest his new fund should be supported?
A look back
His first new launch under the Woodford Investment Management banner was the Equity Income fund. It 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.
Neil Woodford was certainly not alone in being caught out in 2016. The greatest success would have come from a switch from a Growth to a Value style of investing early in 2016 (more on this here) – but few fund managers were this agile. And certainly not with a giant fund such as that which Neil runs.
His second launch, the Patient Capital investment trust, has been very disappointing. At the time, we thought he was going beyond his typical brief. As such there was no relevant track record, and we suggested you should opt for proven alternatives. We reviewed this within the last two weeks here. In a nutshell, the fund has lost money since launch whereas our two recommended funds are up 26% on average (a differential vs the Woodford fund of 35%).
Opportunities?
He always said that there would be a third fund. What we find particularly interesting 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?
Forced to make a choice we would look at the new Income Focus fund and to replace the Equity Income fund – and that would be regardless of whether we were looking at this as an income or growth investor.
ACTION FOR INVESTORS
- Income investors considering Woodford’s new fund should remember that consistency of payout growth is a key consideration when investing for income
- Don’t be swayed by shiny marketing
- Ensure that any new fund you add to your portfolio fulfils a “need”
FURTHER READING