This week's Big Theme shows that many of the funds that have outperformed since the financial crisis of 2008-09 share a quality, defensive focus. One of the most highly respected practitioners of this investment approach is Neil Woodford, manager of CF Woodford Equity Income Fund (GB00BLRZQB71), which we count among our IC Top 100 Funds. He isn't mentioned in that article because he no longer runs the funds he ran during the crisis, and only launched the latter two years ago. But Mr Woodford has an excellent long-term track record with the Invesco Perpetual Income (GB00BJ04HX60) and High Income (GB00BJ04HQ93) funds which he managed for several years.
- Manager has strong track record
- Quality, defensive fund style
- Low ongoing charge
- Full portfolio transparency
- Short-term volatility risk
He left Invesco Perpetual in 2013 and set up Woodford Investment Management in 2014. Since its establishment, CF Woodford Equity Income Fund has comfortably outperformed the FTSE All-Share, returning 16.3 per cent compared with a flat return for the index.
Mr Woodford has demonstrated sustained stockpicking skill and an ability to beat the market over the long term. He has a strong record of maintaining a consistently high alpha score over a proven track record in both rising and falling markets. According to FE Trustnet data Mr Woodford delivered a cumulative total return of 125.2 per cent over 10 years, compared with 71.9 per cent for a composite of his peer group.
Mr Woodford favours quality businesses and takes an active, value-driven and long-term investment approach when choosing stocks. This quality bias can be favourable for investors looking for secure income as the predictable earnings and profits generated by companies operating in defensive areas, such as tobacco and pharmaceuticals, can offer greater income certainty.
CF Woodford Equity Income Fund aims to provide a reasonable level of income together with capital growth by investing in quality companies that can deliver sustainable dividend growth.
Primarily this will come from listed UK companies, but the fund is also able to allocate up to 20 per cent of its portfolio overseas. About 19 per cent of the fund is invested abroad, mostly in the US, and also in Europe. This international diversification may prove useful if there is market volatility following the UK's referendum on whether to stay in the European Union (EU).
Adrian Lowcock, head of investing at Axa Wealth, says: "Neil Woodford tends to run a portfolio of large internationally-focused businesses with significant earnings in US dollars. So while in the short term the fund would be hit by an inevitable sell-off in equities [in the event of a vote to exit the EU], the effects are not likely to last as long. Over the longer term these companies would benefit from a weaker sterling as it would give their overseas earnings a boost."
The fund's exposure to companies that boast high cash generation, good brands and strong management should also see it protect capital better in the event of any short-term market sell-off.
"Mr Woodford doesn't invest with a macro perspective," adds Mr Lowcock. "He's investing in good companies, that are well managed, that have moats around their earnings but also have earnings growth - so there's strong potential for earnings growth and, in the event of a Brexit, it will recover more quickly than other funds or parts of the market."
CF Woodford Equity Income Fund also has a low ongoing charge of 0.65 per cent and, unusually for a fund, full disclosure of its portfolio holdings.
So, if you're an income investor seeking a fund manager with a strong, long and reliable track record and the ability to provide a rising level of income, then this fund ticks the boxes. Buy. EA
| CF Woodford Equity Income Fund (GB00BLRZQB71) | |||
|---|---|---|---|
| Price | 110.43p | Set-up date | 02/06/2014 |
| IA sector | UK Equity Income | Manager start date | 02/06/2014 |
| Fund type | Open Ended Investment Company (OEIC) | Yield | 3.93% |
| Fund size | £8.92bn* | Ongoing charge | 0.65% |
| No of holdings | 72 | More details | https://woodfordfunds.com/our-funds/weif/ |
Source: Morningstar at 22/06/16, *Woodford Investment Management LLP as at 31/05/16
Performance
| Fund | Return since launch on 03/06/2014 (%) | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | 10-year cumulative total return (%) |
|---|---|---|---|---|---|
| CF Woodford Equity Income | 16.3 | -1.0 | na | na | na |
| Invesco Perpetual High Income | 8.8 | -1.7 | 24.6 | 62.5 | 116.5 |
| Invesco Perpetual Income | 7.3 | -3.1 | 22.6 | 59.8 | 109.9 |
| FTSE All Share TR | 0.0 | -3.4 | 16.0 | 36.9 | 68.7 |
Source: Morningstar, as at 21/06/16
Top 10 holdings as at 31/05/16 (%)
| Imperial Brands | 7.61 |
|---|---|
| AstraZeneca | 7.20 |
| GlaxoSmithKline | 6.35 |
| British American Tobacco | 5.93 |
| Legal & General | 5.26 |
| Provident Financial | 4.31 |
| Reynolds American | 3.38 |
| AbbVie | 3.28 |
| Roche | 3.14 |
| Capita | 2.99 |
Source: Woodford Investment Management LLP as at 31/05/16
Sector breakdown (%)
| Healthcare | 36.5 |
|---|---|
| Financials | 24.6 |
| Consumer Goods | 17.3 |
| Industrials | 14.3 |
| Consumer Services | 3.1 |
| Technology | 3.0 |
| Utilities | 0.9 |
| Telecommunications | 0.5 |
| Basic Materials | 0.1 |
| Fixed Income | 0.0 |
| Oil & Gas | 0.0 |
| Cash and near cash | -0.2 |
Source: Woodford Investment Management LLP as at 31/05/16
IC tip rating
| Tip Style | Income |
|---|---|
| Risk Rating | Medium |
| Timescale | Long term |
