Neil Woodford is widely regarded as one of the UK’s best equity income fund managers, with his Income and High Income funds having provided outstanding long-term returns. However, over the past couple of years, his funds have suffered as cyclical stocks have rallied at the expense of defensives, where his funds are overweight. But many commentators remain prepared to give him and other value managers the benefit of the doubt.
A reason for doing this is the funds' long-term track records. Over five years, both are among the top-10 total return performers in the UK equity income sector, while over 10 years Income is the top fund and High Income the second-best. The funds are not the highest yielders, but that is not their mandate. Instead, they aim for "a reasonable level of income together with capital growth."
Fund research companies S&P Fund Management and OBSR both accord their highest rating to the funds, triple A, while OBSR continues to classify the funds as 'Elite' its highest of five qualitative rankings.
"The notable deviations from the benchmark can lead to bouts of underperformance, but Mr Woodford has executed his strategy well over the long term," says Chetan Modi, fund analyst at OBSR. Advisers are also fans.
"The High Income fund has been on our buy list for approximately 20 years," says Darius McDermott, managing director of discount stock broker Chelsea Financial Services. "The majority of our clients have holdings in his fund and have nearly always been very happy. Those who have held it for a long time have done very well. Neil has continued to run his fund in the way he always has, and the key thing is for a fund manager to do what they say they will, and not change style to chase short term performance."
Other advisers are similarly upbeat. If they have concerns, they're more about the size of the funds and their costs. Mr Modi notes that Neil Woodford is now managing around £24.9bn, and says this "limits his ability to make nimble moves or invest meaningfully in less liquid issues."
"Our concern is in part alleviated by his style, which doesn't demand a lot of market liquidity, but in a pronounced small/mid-cap rally, the fund would be at a disadvantage and Mr Woodford would find it difficult to take meaningful positions in smaller-cap companies."
The total expense ratio (TER) on the funds, 1.68 per cent on Income and 1.69 per cent on High Income, is also above the median.
Invesco Perpetual High Income Fund (as at 30 April 2011)
| Top 10 holdings | % |
|---|---|
| AstraZeneca | 8.49 |
| GlaxoSmithKline | 8.09 |
| Reynolds American | 6.65 |
| BG | 5.92 |
| British American Tobacco | 5.69 |
| Vodafone | 5.03 |
| BT | 4.85 |
| Roche | 4.06 |
| Imperial Tobacco | 3.80 |
| Reckitt Benckiser | 3.64 |
| Total | 56.2 |
| Total number of holdings: | 104 |
Invesco Perpetual Income Fund (as at 30 April 2011)
| Top 10 holdings | % |
|---|---|
| AstraZeneca | 8.43 |
| GlaxoSmithKline | 8.14 |
| Reynolds American | 6.10 |
| BG | 5.93 |
| BT | 5.44 |
| Vodafone | 5.36 |
| British American Tobacco | 4.89 |
| Imperial Tobacco | 3.84 |
| Roche | 3.74 |
| Reckitt Benckiser | 3.67 |
| Total | 55.5 |
| Total number of holdings: | 117 |
