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Investors urged to ditch Woodford's Income and High Income funds

by Rachael Revesz on Jan 28, 2013 at 07:10

Investors urged to ditch Woodford's Income and High Income funds

Star manager Neil Woodford’s Invesco Perpetual Income and High Income funds have been given a ‘sell’ rating in the influential Sanlam Income Study.

The report, previously known as the Principal Income Study, placed the funds in its Grey List, saying it would ‘prefer managers who are able to be more pragmatic in the face of swiftly changing circumstances’.

It said the Income and High Income funds’ respective £9.2 billion and £12 billion size, and Woodford’s defensive style, meant they had become ‘very focused in many of the very large stocks in the market’.

Andrew Merricks, head of investments at Hove-based Skerritt Consultants, agreed that size was a problem for Woodford.  ‘The size of his funds is larger than the GDP of some smaller sized countries. He cannot sell so he has to take a longer term view – he’s not an active manager, really,’ he said.

The Invesco Perpetual High Income fund has returned 31.9% over three years, beating the FTSE All Share’s 24.2%. The Invesco Perpetual Income fund has returned 30.7% over the same period. However, Woodford’s defensive style has hurt performance over recent months, with both funds lagging the FTSE All-Share over 2012.

Woodford’s Invesco Perpetual High Income fund is a Citywire Selection pick. Citywire head of research Jonathan Miller said: ‘Neil Woodford has shown that he can get the big calls right. This has helped his strong long term performance even if at times the fund has appeared pedestrian.’

36 comments so far. Why not have your say?

Andrew IFA

Jan 28, 2013 at 08:30

Well i've been investing clients in Woodfords funds for more years than i care to remember, whilst i will trim it off and take profits, its long term track record is one that most envy.

In fact i seem to remember that when he underperforms it can be a good time to buy him.

So lets see how the next couple of years go, thats if there are any IFA's left to comment post RDR 2/3.

Most definitely our clients will retain an interest in the fund.

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Paul Howard via mobile

Jan 28, 2013 at 08:39

Can't agree more Andrew! Give it a year and we will see how some of the more aggressive funds have done.....

I wouldn't bet against Mr Woodford!

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Jan 28, 2013 at 08:53

'He can not sell because he has to take a longer term view'!! Wow, fancy that a fund manager using sound, time tested principles of investing. Won't be using this fund again!!!

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Darren Lloyd Thomas

Jan 28, 2013 at 09:04

Yep I'm with Andrew here. The whole idea of blending different fund managers is that you accept they will be doing different things at different times. Sure, if the managers performance dives long term I would have a different view but Mr Woodford is defensive. That's what you get when markets shoot up - he will lag.

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Hugh Malcolm Morton

Jan 28, 2013 at 09:08

Yes, the funds haven't always been in the top quartile but he has got many calls right in the past, like the banks, BP, dot.com, etc. What he has done though is provide long term consistent performance for many years.

I'd rather my clients had that than keep looking who is doing well now and changing every 6 months.

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Jenny N . I FA

Jan 28, 2013 at 09:10

I have had very good results using some of these funds in my portfolios and think that this title is a bit of scare mongering that could damage a fund and cause a run on it.

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Richard Hardy

Jan 28, 2013 at 09:30

No recommendation of any alternatives then!

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Rhys Lewis

Jan 28, 2013 at 09:51

And I remember when these same pundits were wrapping Mr Woodford's knuckles for failing to invest in all those dot com companies well over a decade ago. Well, Mr Woodford is still standing, what about all those other investment managers. Perhaps this is another here today and gone tomorrow story?

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Jonnieb666 via mobile

Jan 28, 2013 at 10:07

Investing is not about recent months as any reasonable person knows. I gave recommended these two funds fir more than 20 years and Neil Woodford gas experienced periods if underperformance in the past, just like every other fund manager. I can see no good reason for investors to dispose if their holdings in these funds as long as their exposure is reasonable.

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Man of Kent

Jan 28, 2013 at 10:19

@ Richard Hardy - quite so. Pundits always seem to know what not to do.

Surely there is no urging of investors to ditch these funds (other than the headline)? It appears Sanlam think they can do better using managers prepared to focus on shorter-term change in markets rather than longer-term value? It's a perfectly valid view, but not the only one.

I'd also question the assertion that Neil Woodford is "not an active manager, really". There's a fine line between active management and activity per se.

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John Phillips

Jan 28, 2013 at 10:20

When is the best time to buy into an asset class or fund? When it is out of Favour! Think Buffet. Subject to all the usual caveats. This article could just as easily say “ Buy Woodford Now Whilst the Fund is Cheap”. Like the previous commentators say, Woodford is a known quantity with longevity and a good track record. It’s a pity there aren't more like him, we would have a more stable market with truer pricing if there were.

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Peter Flowers

Jan 28, 2013 at 10:22

mmmm, 'fifty shades of grey' and none of it interesting reading. Why do quite well respected organisations (and Citywire) publish something which can only in my opinion be intended to generate them a cheap headline somewhere. No doubt our media 'friends' will pick up on this and cause some mild panic amoungst lesser informed investors. We have also been a holder and supporter of Mr Woodford's funds for many years and would only consider 'ditching' them if there was a sound reason to do so.

Come on Sanlam, we need long term investors such as Woodford and Buffet, people with conviction, not knee jerkers who only create greater volatility and uncertainty, when we least need it.

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Mark Cooper

Jan 28, 2013 at 10:26

A signal to buy more if ever there was one. What has that Neil Woodford ever done for us?

I agree, his outdated process of investing in companies that make huge profits from around the world and share those profits as dividends to their loyal followers has no future.

Is it April 1st already?

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Bridge North

Jan 28, 2013 at 10:28

Looks like we are all in agreement so far.

If buying an active manager, their style is important and how this blends with the other elements to provide diversity and spread concentration risk.

At the heady peaks of the dot.com revolution he was in the 'dock' yet he was right in his assertions. He is not always wrong.

No doubt he is wrong at times when he puts coloured in with his whites when doing the washing - que sera!

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Mark Cooper

Jan 28, 2013 at 10:32

@ Bridge North

"No doubt he is wrong at times when he puts coloured in with his whites when doing the washing - que sera!"

Is that a subliminal reference to Tony Dye?

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Mike Morley

Jan 28, 2013 at 10:37

A very interesting chart is Neil Woodford's Income/High Income Funds and Richard Buxton's Schroder UK Alpha Plus comparing their performance against the FTSE All Share. Resembles the old "Ice Cream v Wellington Boot" graph.

It has generally been the case that the Woodford funds tend to lag a bit when markets are flying but they really come into their own when a short term bubble bursts. Simple reason for this is that you can be pretty sure that Neil Wooodford will have kept well away!

Not funds I would be selling any time soon and indeed could be viewed in the current markets as a potential alternative to overpriced bond funds.

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Jan 28, 2013 at 10:41

This is ONE company's opinion - since when does this become the right answer?

You ask 10 'experts' what they think the markets will do and 5 will say it will be going up and 5 will say it will be going down. Always been the case.

Citywire should know better than printing shock articles like this - this isn't the Daily Mail!

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Mad Eyes

Jan 28, 2013 at 10:49

'GREY' list? I quite like grey and Woodford has more of it than when i first started using IP funds. Not as much as Buffett but he's getting there!

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Simon Kershaw

Jan 28, 2013 at 11:00

These funds have been core holdings for most of my clients for over 20 years. As such I have been happy to disregard periods of relative underperformance and been rewarded when such periods have been proven to be "frothy".

I regard Neil Woodford highly and see no reason to lose faith. The Principal White list is a useful tool but is not a panacea. In practice if following the White List criteria the Woodford funds would only form 10-15% of a client holding and the zest would be provided by the likes of Unicorn or JOHCM.

Storm in teacup.

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Jan 28, 2013 at 11:29

There is a large element of truth in this report. It is true that when funds get so large, especially when new reciepts exceed encahments, the manager has much limited choices available to him/her.

The manager can either increase current holdings, but buying at a higher price than his average, thus watering down the dividend yield for the stock, or invest in stock that was not necissarily first choice. Selling existing holdings can also be a problem when the fund can hold a big percentage of issued shares. Imagine the licking of lips from the hedge boys if Mr Woodforde anounced he no longer wanted to invest in xyz, or sold sufficient quantities to get tongues wagging. So he has to sell in small quantaties and do this over a long period of time. If his holdings exceed reporting percentages, the world will know once certain limits are breached.

So huge funds cannot be very versatile, and by their very nature have to be long. Is this a bad or a good thing? Well, if you put a small portfolio together for your client, it may be bad, but as part of a larger portfolio, it is a real asset.

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Jan 28, 2013 at 13:01

Hmm. Perhaps clients should be moved into the Snowdonia funds instead? Is that the message? Are those funds even around any more?

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Keith Cobby

Jan 28, 2013 at 13:34

A piece of 'puff' for a Monday morning. I am not sure how 'influential' Sanlam are because I had to look them up on Wikipedia.

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Chris Jones

Jan 28, 2013 at 13:49

Having exactly this conversation a couple of weeks ago and made the same comment then as I will make now. Historically, where we have moved from noticing that Woodford is a bit behind the curve to questioning his ability to drive returns, the market has moved in his favour and he has wound up top of the pile within 3 months.

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Mr X

Jan 28, 2013 at 14:33

This is a case in point why IFAs need to be educated about the benefits of using exchange traded funds. ETFs are a very low cost way of tracking a blend of indices with the added advantage of intraday liquidity. ETFs provide pure exposure to asset classes.

ETFs listed on the LSE are regulated under UCITS, same as any other mutual fund used by IFAs. Also, they are far more transparent than the traditional mutual funds.

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sol trader

Jan 28, 2013 at 15:13

Mr X - you're a better man than I because I still do not find ETFs transparent in any way..

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Man of Kent

Jan 28, 2013 at 15:21

@ Mr X - Don't quite understand why this is a case in point for the use of ETFs.

ETFs are undoubtedly very efficient and transparent, but someone still has to choose the indices to track. Many IFAs are turning to the use of discretionary fund managers for this purpose (Evercore, for instance, use ETFs almost exclusively).

Neil Woodford is an active manager and has done well over the long term by selecting individual stocks in selected sectors (and avoiding other typical index constituents). It's doubtful he would have been able to achieve the same using any blend of indices. If an investor favours the use of active managers, there are few showing such sound, long-term judgement and who surely deserve a place in any 'active' portfolio.

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Jan 28, 2013 at 15:25

Mr X

Please name me a UK ETF that is designed to gainprovide income from equity? All I know is the State Street UK Div Aristocrats, and I don't see any transparancy there. Please give me a list of ETFs which has higher than average FTSE 100 dividend yield.

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Mr X

Jan 28, 2013 at 15:32


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Keith Cobby

Jan 28, 2013 at 16:29

I do not agree that ETFs are transparent. I recently looked at the iSHARES annual report and found it impenetrable. The most transparent collective investment is the investment trust. A detailed annual report usually showing all the holdings.

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Mr X

Jan 28, 2013 at 16:49

Can you get the complete holding of investment trust/mutual funds on a daily basis?

Can you get to see what the securities lending position is on a daily basis with mutual / pension funds (which they are entitled to engage in under UCITS)?

Can see what the derivative policy is for mutual funds - which, again, they are entitled to use (and a lot of them do) under UCITS?

Can you explain fully to your clients the risks involved in the way fund is structured?

Do you fully understand UCITS?

Have you atually read any of the ETF educational guides?

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Keith Cobby

Jan 28, 2013 at 18:51

I prefer investment trusts and unit trusts because they are separate legal entities unlike ETFs and OEICs with their sub-funds. Very difficult to see what is going on under the bonnet.

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Julian Stevens

Jan 28, 2013 at 20:07

I see no good reasons to lose faith in Neil Woodford just because of what will undoubtedly turn out to be a finite spell of lagging behind some of the more dynamic funds. Solid, steady and reliable performance is what most investors want and that's exactly what Neil Woodford has delivered for decades. Take the long term view and stay put.

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Jan 28, 2013 at 20:07

Yeah he's a man for the long outlook alright, wouldn't have it any other way. 15% of my portfolio is with him and since 2002 he's managed to triple my investment through some of the most challenging times. However, I've also added in the last 18 months JOHCM at 15% for wee little more spice.

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Geoff N

Jan 29, 2013 at 04:16

Markets have risen how much in 2 years?Woodford's funds are known for their defensive bias so what's this guy trying to say?They have trailed a rising market.What a surprise.

My forecast in 2 years time after markets have entered a bear phase."Once again Woodford was not afraid to stick to his old investment principals and refused to be swayed by the latest investment craze,and we are returning these funds to the whitelist."Stick at it Woodford,few if any will desert your funds.

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David IFA

Jan 29, 2013 at 10:31

I agree with you Geoff N. We have been here before and Woodford has been criticised in the past. But he sticks to his guns and is usually proved right. I much prefer his tack to alot of other fund managers who are ' one night wonders' and then in a downturn we the adviser are left to pick up the pieces. Carry on Neil my monies still on you!

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John Phillips

Feb 02, 2013 at 08:39

No problem being on the Grey list. Especially if there are 50 shades to choose from. He may well attract more female investors. :-)

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