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The stocks punishing Neil Woodford in a torrid year

Provident Financial's collapse leaves fund manager Neil Woodford bottom of his sector over one year and outside top flight over three.

 

by Daniel Grote on Aug 23, 2017 at 16:59

The stocks punishing Neil Woodford in a torrid year

Yesterday's spectacular collapse in the shares of Provident Financial (PFG) has capped a torrid 12 months for the UK's most famous fund manager, Neil Woodford.

Woodford has endured a series of blows to some of the biggest holdings in his £10.1 billion Woodford Equity Income fund over recent months. But yesterday's hit was the hardest.

Provident Financial's 67% tumble in a single day was one of the biggest in FTSE 100 history. And Woodford was among the doorstep lender's biggest backers, with the stock the fourth largest holding in his flagship fund, together with big positions in his other portfolios. Topping up on the shares following the company's June profit warning has compounded the loss.

Woodford Equity Income's 3.3% fall yesterday was the biggest of any fund in the UK, saddling investors with a 2.9% loss over the last 12 months. The largest fund in the Investment Association's UK Equity Income sector is now its worst performer over a year and the only one to have made a loss. Over the same period, the FTSE All-Share has risen 12.8%.

Woodford has endured a swift reversal of fortunes for this fund, which is only just over three years old, and still boasted the best returns of any fund in its sector as recently as six months ago. Even with the difficulties of the last 12 months, the fund's 26% return since its launch in June 2014 still places it just outside the top quarter of funds in the sector.

And set against a near 30-year career in fund management, the last 12 months is just blip in an astonishing strong long-term track record. Figures compiled by Hargreaves Lansdown, piecing together his performance on the Invesco Perpetual High Income fund together with his new flagship fund, show that a £10,000 investment in 1988 would have grown to £310,400 today. The same amount invested in the FTSE All-Share would have grown to £121,400.

Nevertheless, Provident Financial, which had already begun to weigh on the fund this year even before yesterday's collapse, is the latest in a litany of major Woodford holdings that have fallen dramatically.

Top holdings hit

Woodford's long-term backing of life sciences investor Allied Minds (ALML) has proved almost as painful this year. Once a top 10 holding in the fund, its shares have lost nearly three-quarters of their value since the turn of the year after being forced to write off $146.6 million of assets and having come under attack from short sellers.

AA (AAAA) meanwhile hit headlines after the firing of executive chairman Bob Mackenzie and its shares are down 36% this year.

Shares in Next (NXT) have lost around half their value since a late-2015 peak amid warnings the retailer could face its own 'Kodak moment', although it has recently clawed back some ground on relief investors' worst fears haven't been realised. It's a similar story for Capita (CPI), down 39% over the last 12 months, but off recent lows, having climbed 22% in 2017.

Shares in top holding AstraZeneca (AZN) tumbled 15% on the day it announced a key lung cancer drug had failed an initial round of tests, and are down 11% over the last 12 months.

Third top holding Imperial Brands (IMB) is meanwhile down 20% over the last 12 months, with plans by the US Food and Drug Administration to slash the amount of nicotine allowed in cigarettes weighing on the sector.

Woodford Investment Management has addressed some of these performance issues in its latest update to investors in its funds, issued yesterday.

'We look beyond market volatility and focus on the fundamentals of businesses,' it said. 'This is always the case but particularly so in the past few weeks when several of our holdings including AstraZeneca, Provident Financial, AA, Theravance Biopharma, Prothena and Imperial Brands experiencing share price weakness.'

'When markets lose sight of valuation discipline, as we believe they have done recently, there is always more risk and more opportunity. We seek to avoid the former and capitalise on the latter.'

The group also argued Imperial Brands, the fund's only remaining tobacco holding after the sale of British American Tobacco (BATS) this summer, could still thrive amid the FDA crackdown.

'We see this as the beginning of a process to deregulate next-generation products,' it said. 'The shares, in our opinion, have not looked as attractive as they are currently, for several years.'

But some of the lesser-known names in the portfolio have also taken their toll. A heavy fall in a smaller company can still dent a fund's returns if the stake in it is large.

AIM misses

Take Imperial Innovations, which is listed on the Alternative Investment Market (AIM) and now known as Touchstone Innovations (IVO). It was a top 10 position when the fund launched, but the shares have been sliding since a mid-2015 peak, and have lost a third of their value over the last 12 months.

That's despite the company, which commercialises university scientific research, being pursued by another Woodford holding, IP Group (IPO). Touchstone has now rejected two IP Group bids which it claims 'fundamentally undervalue' the business.

Likewise, fellow AIM-listed 4D Pharma (DDDD), which has fallen 56% over the last 12 months. Although the stock started out as a 0.4% position in 2014, the shares' rally meant that by the summer of last year it accounted for 1.2% of the fund.

In pounds-and-pence terms only Imperial Brands and Allied Minds have done more damage to the fund over the 12 months to the end of June, although Provident Financial will have eclipsed all three with yesterday's showing. And in fairness, the stock is still up around 69% since the fund launched.

Other small stocks have also hit the headlines for the wrong reasons. US firm Northwest Biotherapeutics (NWBO.O) is down 98% since the summer of 2015 when it was forced to recruit a former FBI special agent to investigate claims of financial impropriety.

Or clean water technology firm Halosource (HALH) and diagnostics group Sphere Medical (SPHR), down 73% and 89% respectively over the last year after both warned they were soon to run out of money unless they secured new investment. Halosource received its cash injection, while Sphere Medical is attempting to delist from AIM in order to secure more money from Woodford.

Pallet maker RM2 International (RM2) is meanwhile down 81% over 12 months, with The Sunday Times highlighting the company's heavy cash burn rate.

Big wins drowned out

Buried beneath Woodford's headline performance over the last year are some spectacular performers. Online estate agent Purplebricks (PURP), which Woodford backed before its flotation, is up 214% over the last year, litigation funder Burford Capital (BURF) has rallied 167% and Hostelworld (HSW) has risen 90%. The problem is they have been drowned out by the floundering of some of his biggest holdings.

And it's not the first time Woodford has found himself at the bottom of the performance charts. His most famous period in the doldrums came towards the end of the last century, when he sat on the sidelines as tech stocks soared in the dotcom boom. Avoiding the bursting of the tech bubble and shunning banks ahead of the financial crisis were the two key investment calls on which he has built his reputation. Investors will hope he will be proved similarly prescient in sticking by some of the stocks that have punished his fund over the last year.

19 comments so far. Why not have your say?

Pmcevoy via mobile

Aug 23, 2017 at 17:40

Please have a look at the Miton Menu .

Woodford has dragged too many of his Apostlels into dangerous investment land

It must stop

I encouraged people out of Patient at 120GBP a year ago cos this was not a fund for "The Man on a Clapham Omnibus" .

Managed Funds : Patient Capital ;

Just get good advice

Macp

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paul birtwistle

Aug 23, 2017 at 18:57

after NW Biotherapeutics debacle last year I questioned whether the Emperor had lost his attire in the process of straying far from his comfort zone. He famously avoided the banks for a long time while at Invesco and now this major mishap with Provident comes along.

life is no doubt more exhilarating away from boring old tobaccos and big pharma, and indeed these have performed poorly of late, but boring can still be best.

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Anonymous 1 needed this 'off the record'

Aug 23, 2017 at 19:20

If there is no reasonable change around with mr Woodford by next March I might be saying goodbye.

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Alastair Kendall

Aug 23, 2017 at 22:35

an over-hyped incompetent all at sea. I am ashamed I put my poor old mother in this nonsense. Sold out this morning .....poor, poor levels of due diligence by the said Mr Woodford,

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richard tomkin

Aug 23, 2017 at 23:06

What carnage.The difference between Buffet and Woodford is that the former is actually involved in the running of some of his businesses ; Woodford is simply an investor,like the rest of us.

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gadgetmind2

Aug 24, 2017 at 08:48

Hmmm, I'm seeing a bit of "buy high, sell low" going on above. Trying to choose the next high performer based on recent (or even long term!) track record is "somewhat difficult".

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stephen hill

Aug 24, 2017 at 09:26

One can climb mount Everest, but you can not live there! It will take a long time to recover, but from these levels the better investments assume a larger position and if the judgement is correct then these will have a positive effect. Like Everest, you can sink to the bottom of the sea but you have to return to the surface

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deeply realistic

Aug 24, 2017 at 11:03

I think we have a problem here in the whole sub prime lending market. This sort of lending WILL always occur, but when loan sharks do it they do tend to get their money back. A decent company gets regulated and targeted, with the result that tried and tested methods of repayment get changed for alternatives that don't work. Other higher levels of sub prime P to P and business lending are now too risky for me. Many companies are having perceived difficulties in their risk levels of lending, as measured by share price. For instance, after several good years GLI shares have tanked, giving me a big capital loss. I can't find any reason why, which says I did not understand what I was investing in. Maybe Mr. woodford had a similar problem here.

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stephen hill

Aug 24, 2017 at 11:08

Deeply realistic, it is a major problem if W (or his team) did not understand what he was investing in.

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Alastair Kendall

Aug 24, 2017 at 11:19

The implication is the Woodford team are not doing sufficient due diligence. As a scientist, I would also like to understand what due diligence processes and expertise are employed to assess their many blue sky science investments. I generally avoid early stage biotech investment as it is fraught with challenge. The leading edge is often the bleeding edge and I cannot understand how the science-lite Woodford team think they have an edge.

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bar chid

Aug 24, 2017 at 13:07

I wonder if there is an inverse correlation between seeking media attention & performance ?

Not just Woodford but as soon as you see a FM writing articles in newspapers or appearing on Bloomberg/CNBC it appears they have peaked.

If they stuck to their knitting rather than media seeking their performance arguably would be better

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gadgetmind2

Aug 24, 2017 at 13:59

Scientists may like to google for Woodford Rossi and E-Cat.

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Franco

Aug 24, 2017 at 17:57

I think the problem with Woodford's funds is that most people fell victim to HL's hype when launching his funds.

Woodford's 25 year overall performance was brilliant, but it was all in the first half of that period. In the last 10 years data show it fell well below that of his peers. His scores were: 3 successes, 6 failures and 1 draw.

Next time remember, it is the advertiser's job to show you the beauty spots, your job is to find the warts.

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Alastair Kendall

Aug 24, 2017 at 18:25

Woodford Rossi and E-Cat? ......looks like another due-diligence failure, or maybe just a failure of basic common sense.

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Dennis .

Aug 26, 2017 at 09:18

Agreed Franco, he is now part of the HL marketing machine so best avoided.

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paul birtwistle

Aug 26, 2017 at 09:54

For anyone interested in the detail of the Woodford portfolio it's worth pulling up the latest report and accounts (easily done on the H-L website). It's a large fund of course but there are some big bets on mid market stocks which must be pretty illiquid when it comes down to it.

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anglo29

Aug 26, 2017 at 10:48

Perhaps it is time to stop according "celebrity" status to certain fund managers. It puts undue pressure on them, and it's misleading for novice investors, who are liable to believe that because such and such a fund is managed by one of these "celebrities" it's a sure fire winner.

Ultimately every "expert" judgement is just another person's opinion, and I've seen enough of these "recommendations" go belly up to realise that my own investment choices are just as valid. Study the market, read the financial magazines, but come to your own conclusions based on the climate of the times, you won't go far wrong.

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Jon Snow

Aug 27, 2017 at 23:57

More importantly, why is the Citywire Forum "404 - Not Found" guess I'll just have to talk to real people now for a while.

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Ivor Grouse

Oct 18, 2017 at 22:39

A lot of comments above seem to want to shift the blame for what is really their own investment failure onto Woodford.

For me, Franco and Anglo29 sum up the situation perfectly above.

There is no free lunch where the big boys play.

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