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Key study puts Woodford funds on ‘sell’ alert as assets soar

Key study puts Woodford funds on ‘sell’ alert as assets soar

Neil Woodford’s High Income and Income funds have been recommended as a ‘sell’ in the latest edition of the Income Study.

The influential study has turned negative on the funds owing to their large size and increasingly concentrated, defensive stock positions.

The latest Sanlam Private Investments Income study – formerly the Principal White List – argued that although the Invesco Perpetual funds run by Woodford have previously been stalwarts of the study, there are managers who have adapted better to the changing economic climate.

These large funds, with the Income fund at £9 billion and High Income at £12 billion, have over the years become concentrated on a core of very large defensive stocks, thanks to Woodford’s negative view on the economy, Sanlam said.

The study explained: ‘These funds have, unsurprisingly, attracted a huge amount of assets, with Woodford now responsible for more than £20 billion at Invesco.

‘This, and the aforementioned assets under management, has led the portfolios to become very focused in many of the very large stocks in the market. We would prefer managers who are able to be more pragmatic in the face of swiftly changing circumstances and therefore place sell recommendations here.’

In response to the criticism Invesco Perpetual told Wealth Manager: 'Neil Woodford has been generating exceptional returns for his investors for over 20 years, through varying market conditions.  His portfolio is intentionally focused towards dependable, undervalued companies which he is confident will generate attractive returns over the long term.'

Sanlam also drew attention to the recent management changes at Newton Investment Management, and placed the firm's Higher Income fund on the ‘sell’ list.

The £2 billion fund has recently been handed from Tineke Frikkee, whose role at Newton is under discussion, to Richard Wilmot.

Although Frikkee’s performance has been less than impressive over the last five years, the income she produced has been stable and higher than average. Sanlam is keeping a close eye on her replacement, as Wilmot's track record was earnt from a different style of investing.

‘Whilst we acknowledge that Richard Wilmot has a good record in investing for growth, this is a different skill to income investing, and for this reason, coupled with the significant change in the process and inevitable lower yield, we are recommending that investors sell,’ Sanlam said.

Both the Invesco funds and the Newton fund features on Sanlam’s ‘Grey list’, which can be an early warning signal for a fund in decline.

However, the Black list is for consistent underperformers and is a sign for investors to look elsewhere.

On this list is Jupiter’s Income fund, run by Anthony Nutt who is set to retire in 2014. The fund will then be handed over to Ben Whitmore.

The study said: ‘A member of the White List for many years, performance has suffered more recently and he ends his tenure in the Black List.

‘Having also followed Ben’s career, we would hope that he turns the fund around, but would prefer to gauge his performance from the sidelines for the moment. Sell.

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Neil Woodford
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88/88 in Equity - UK Equity Income (Performance over 3 years) Average Total Return: -4.35%
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