Should you invest in Neil Woodford's new fund?
Star stock-picker Neil Woodford launches a new fund on 2nd June. But who is Woodford, and should you put your money into his new venture?
Among British investment managers, few names stand out as much as Neil Woodford's. Woodford has a hard-won reputation as one of the UK's top stock-pickers, while his market-beating performance made a fortune for his employer, fund firm Invesco Perpetual.
However, after decades of successfully managing other people's money (at his peak, he controlled at least £33 billion across various funds), Woodford is striking out on his own. On 1st May, he set up his own fund management business, the aptly-named Woodford Investment Management.
What's more, excitement in the investment world is reaching fever pitch as Wood is poised to unveil his first new fund in years on Monday 2nd June. With just 12 days to go until the most-anticipated fund launch this century, should investors jump aboard the Woodford bandwagon? Or should they bide their time and monitor his investor returns before joining in?
To answer these questions, let's look at the man, his track record and the nitty-gritty of his new fund.
Woodford's biography
Neil Russell Woodford was born in 1960 and graduated in Economics and Agricultural Economics from the University of Exeter in 1981. His further education includes postgraduate studies in Finance at the London Business School.
Woodford's career in the City started at Dominion Insurance Company in 1981. Next followed a position as a trainee equity analyst at Reed Pension Fund in 1983 and then a corporate finance role at TSB. In 1987, he moved to Eagle Star as a fund manager.
Woodford's most momentous move came in early 1988, when he joined the ranks of Perpetual, based in the sleepy investment backwater of Henley-on-Thames. Rising to the role of UK Head of Equities, Woodford spent almost 26 years establishing his reputation as one of the best money managers in Britain (if not the best).
Praised in 2012 in a Government-commissioned report into UK stock markets in as "the ideal fund manager", Woodford was appointed a Commander of the Order of the British Empire (CBE) in the Queen's 2013 Birthday Honours for services to the economy.
Woodford's fantastic funds
Woodford may be well-qualified, highly respected, widely admired and state-honoured, but all that matters to investors is whether he makes them money. What investors crave most from a fund manager is 'alpha' – any extra profits he generates above and beyond the market's own returns.
In this respect, Woodford is quite simply one of the brightest stars in the investment universe. As fund website Trustnet says, Woodford has "maintained a consistently high alpha score over a proven track record in rising and falling markets".
During his time at Invesco Perpetual, Woodford managed as many as six different funds, producing bumper returns for patient investors attracted by his reliable and stable yearly returns. These are the funds that Woodford has steered through the market's ups and downs.
|
Fund name |
Woodford's tenure |
|
Invesco Perpetual High Income |
February 1988-March 2014 |
|
Invesco Perpetual Income |
October 1990-March 2014 |
|
Invesco Perpetual Monthly Income Plus |
February 1999-October 2013 |
|
Invesco Perpetual Distribution |
January 2004-October 2013 |
|
Edinburgh Investment Trust |
September 2008-January 2014 |
|
SJP Strategic Managed |
April 2010-April 2014 |
As you can see, Woodford's longest spell was managing Invesco Perpetual High Income, a fund which he nurtured and grew for 26 years. As word of Woodford's investment prowess spread, investors flocked to invest in this fund and its sister, Invesco Perpetual Income. As a result, these became two of the biggest retail investment funds in the UK (worth £13.1 billion and £7.8 billion respectively by the end of April 2014).
Investors who backed Woodford by putting £1,000 into the Invesco Perpetual High Income fund when he took the reins in 1988 would own fund units valued at over £25,000 today. That's a compound yearly return of over 13.2% in a quarter-century of riding the stock market roller coaster. Even better, this double-digit return easily beats the 9% or so a year that the London market as a whole has produced since 1988.
Woodford's terrific track record
Woodford's long-term investment record is second to none, but his buy-and-hold approach seems to work especially well in falling markets. Here is his performance against his peers over the past decade.
|
Year |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
Neil Woodford |
9.0 |
20.8 |
5.7 |
14.1 |
27.5 |
-17.9 |
-5.5 |
19.8 |
27.3 |
15.1 |
|
Peers |
12.4 |
18.7 |
-0.3 |
12.0 |
30.4 |
-23.1 |
-8.5 |
10.8 |
25.5 |
10.1 |
|
Relative performance |
-3.4 |
2.1 |
6.0 |
2.1 |
-2.9 |
5.2 |
3.0 |
9.0 |
1.8 |
5.0 |
As you can see, in good years and bad, Woodford tends to outperform his rivals. Indeed, he has done so in eight of the past 10 years, which hints at a statistical edge over the rest of the investment herd.
Woodford's investment style
Woodford makes no secret of the fact that he dislikes 'fad investing' and refuses to follow the 'hot money' into the next big thing. He ignores short-term returns and, instead plays the long game, buying shares that he intends to hold for at least five years – if not forever.
As a result, Woodford favours big, blue-chip companies with solid balance sheets and reliable, growing earnings. As primarily an income investor, Woodford seeks firms that pay chunky cash dividends to their owners, which is why he often holds major stakes in tobacco, pharmaceutical and utility businesses.
Ahead of his new fund launch, Woodford has already confirmed that his investment style will not change one bit. In the past, Woodford's approach helped him to dodge the dotcom bust of 2000 and the banking meltdown of 2008, so his style may well hold up during future market downturns.
Should you invest in the Woodford Equity Income fund?
At 54, it could be argued that Woodford is in the prime of his life as a money manager. After all, American investment superstar Warren Buffett is still chairing $313 billion corporation Berkshire Hathaway at the tender age of 83.
In a recent interview with the Telegraph, Woodford claimed, "My best years as a fund manager are in front of me. I have learnt a lot from my successes and failures. I am a better fund manager now than I was 25 years ago." So he could yet have another quarter-century of expertly managing money ahead of him.
Another factor in Woodford's favour is the extra flexibility that comes from managing a much smaller fund. In the investment world, it's said that 'elephants can't gallop'. In other words, huge funds are more unwieldy and cannot move as quickly to seize opportunities as smaller, nimbler rivals can.
One big bonus for investors looking to enjoy Woodford's talent is that his new fund has much lower charges than other actively managed funds. The yearly charge is a mere 0.75% and there is no initial (upfront) charge or any other fees. With similar funds charging upwards of 1.5% a year and 5% upfront, this stands out as a genuine bargain in active fund management.
In short, to answer the big question ('Should you invest in Woodford's new fund?'), I would reply in the affirmative. Indeed, I've backed Woodford profitably in the past, directing my wife to put her 1996/97 ISA allowance into his flagship Invesco Perpetual High Income fund. As we've seen, this fund's returns have thrashed rivals' performances, making me yet another of Woodford's committed apostles.
Furthermore, Peter Hargreaves (co-founder of top investment firm and FTSE 100 member Hargreaves Lansdown) describes Woodford as "one of the most gifted fund managers I have ever met".
However, as the standard investment wealth warning says: 'Remember past performance is not a guide to future returns'. I could well be wrong. Even so, if Woodford doesn't do well, then I rather suspect that rival fund managers will do even worse. Therefore, given the choice, I know which manager I'd rather back!
How to invest in the Woodford Equity Income fund
Woodford's new fund (Woodford Equity Income) launches on Monday 2nd June and is poised to attract billions of pounds from British investors. The offer period closes on Thursday 19th June and the fund will start trading on Friday, 20 June.
You can invest in the fund using investment platforms such as BestInvest, Fidelity and Hargreaves Lansdown and you'll be able to put the fund into a stocks & shares ISA or SIPP. It's a good idea to shop around as platforms charge different annuals fees for holding investments with them. For a basic guide, have a read of Beginner's guide to investment platforms.
More on investing:
The cheapest investment platforms for ISAs
Beginner's guide to investment platforms
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