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Woodford ejected from UK Equity Income sector

Flagship Woodford Equity Income fund removed from Investment Association's UK Equity Income sector for failing to meet yield target.

 
Woodford ejected from UK Equity Income sector
 

Neil Woodford's flagship fund has been removed from the Investment Association's UK Equity Income sector. 

The news followed an IA warning at the end of last year that the LF Woodford Equity Income fund would lose its place in the sector if did at least match the FTSE All-Share yield. 

According to the IA, the fund's three-year average yield to the end of December stands at 3.5% versus 3.6% on the FTSE All Share. 

Woodford Investment Management said in its discussions with the IA that it had recommended removing the yield target as it did not reflect dividend growth potential. 

However the Investment Association has stuck to its guns, forcing the fund to move to the UK All Companies sector. The Woodford Income Focus fund is in the Specialist sector and will remain there.  

A Woodford spokesperson said: 'Throughout his 30-year investment career, Neil has focused on delivering positive long-term total returns through a combination of income and capital growth for his flagship equity income funds.

'He believes this strategy is in the best interests of his investors and he has never been willing to sacrifice capital to supplement income in the short-term and his portfolio construction isn’t dictated by yield considerations.

'During the recent IA consultation on the UK equity income sector, we recommended removing the headline yield target as it does not effectively capture the impact of dividend growth over the long term.' 

The fund group also pointed out Woodford's principal focus was on income per share, rather than overall yield. 

'Neil's focus for the LF Woodford Equity Income Fund (and his previous equity income funds) has been, and always will be, on delivering a particular level of income per share, rather than a specific yield,' the spokesperson person said

'From the outset, Neil said he would aim to deliver [income of] 4p based on the launch price of £1 and grow that income each year. That commitment remains [see table below].

'However, we recognise that managing the equity income fund in this way is always likely to be challenged by the parameters set by the IA for its equity income sector, and subsequently we are comfortable that the fund will now sit in the UK All Companies sector.'

Average pence per share across share classes*
Year Price
2015 4.0259p
2016 4.0993p
2017 4.1798p

*Source: Northern Trust 

The fund joins a number of competitors to be removed by the IA from the sector recently. These include Woodford's former Invesco Perpetual High Income and Income funds, now run by Mark Barnett, Evenlode Income , Montanaro UK Income , Jupiter Responsible Income and HC Charteris Premium Income

Hargreaves Lansdown senior analyst Laith Khalaf  highlighted that Woodford currently saw more opportunities in naturally lower-yielding companies than he has historically.

These smaller and mid-sized businesses tend to be innovative, but higher risk, and Woodford believes one day they will have the potential to lead their markets. 

Khalaf said: 'This fund places an emphasis on long-term total returns, and so Neil Woodford is willing to give up some income now in return for longer term growth prospects. 

'Consequently, over the last few years the fund has yielded on average a little less than the UK stock market, which means it’s no longer eligible for inclusion in the UK Equity Income sector.' 

The news comes as Woodford endures one of the most difficult periods in his fund career, with assets in the fund sinking from a peak of around £10 billion to £6.8 billion. 

In the 12 months to the end of February the fund has lost 9.2% versus an average gain of 3.3% in the equity income sector. Over three years it has returned 3.6% versus the 14.4% average in the peer group.

5 comments so far. Why not have your say?

Andrew Stevenson

Mar 22, 2018 at 12:29

It's nice that this article wasn't started with the usual obligatory 'Star Fund Manager' Neil Woodford.

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joseph o neill

Mar 22, 2018 at 13:31

Hasn't the fund held a large proportion of dog stocks ,where dividends had to be cut substantially, whereby reducing the overhaul yield in the portfolio. !!

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Ian Gregory

Mar 22, 2018 at 14:26

I will probably have died of old age before he contributes to my pension funds

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King Lodos

Mar 22, 2018 at 19:45

They do need to change yield requirements for the sector.

It should be based on bonds.

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DREXEL

Mar 24, 2018 at 16:25

This has happened to plenty of funds yet I don’t recall Citywire thinking it worth an article. I feel some of this Woodford stuff you are printing falls little short of bullying. No doubt many of your readers lap it up to their discredit. Why not cut the man some slack? Your use of the word ‘ejected’ was inappropriate and employed to convey a certain image which was a distortion of the fact.

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  • LF Woodford Equity Income A Sterling Acc
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  • LF Woodford Income Focus A GBP Acc
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  • Invesco Perpetual High Income
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  • Invesco Perpetual Income
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  • TB Evenlode Income B Acc
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  • Montanaro UK Income Sterling Seed GBP
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  • HC Charteris Premium Income R Inc
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Look up the fund managers

  • Mark Barnett
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  • Neil Woodford
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