The abolition of stamp duty for first-time buyers purchasing properties worth up to £300,000 could benefit housing companies, and government plans to encourage investment in certain technologies could benefit companies in these areas.
Exposure to housing and tech stocks
Manager has made strong returns
Manager has mitigated losses
International exposure
Dividend payouts
Recent underperformance
However, there is no guarantee that these measures will have a sustained effect on the share prices of companies in these areas. So rather than ploughing money into a few companies in the hope that they will benefit, it could be better to get exposure to them via a fund that holds them alongside other investments. If things don't go well for housing and technology companies such a fund overall could still make good returns because of its other holdings.
CF Woodford Equity Income (GB00BLRZQB71) holds housebuilders Barratt Developments (BDEV), which it added to in October, and Taylor Wimpey (TW.), as well as online estate agent Purplebricks (PURP).
CF Woodford Equity Income also has exposure to early-stage technology companies and broadband company CityFibre Infrastructure (CITY). But alongside these it invests in large multinationals and shares listed outside the UK – around 10 per cent of its assets – which could hold up better if the UK's departure from the European Union (EU) has a detrimental effect on domestically-focused companies.
CF Woodford Equity Income has underperformed the FTSE All-Share index and the Investment Association (IA) UK Equity Income sector average over one and three years. However, it is run by Neil Woodford who over his long career has performed very strongly, most notably while he ran the Invesco Perpetual Income (GB00BJ04HX60) and High Income (GB00BJ04HQ93) funds up until 2014.
The underperformance is largely attributable to 2016 and this year to date – in 2015 the fund was well ahead of the FTSE All-Share and many of its sector peers. It lagged the index in 2016 due to being underweight mining and momentum shares, and this year its largest holding AstraZeneca's (AZN) share price dropped sharply after one of its drugs didn't meet expectations.
Mr Woodford takes significant stock or sector bets, so his funds can perform quite differently to major indices and lag rapidly rising markets. However, his defensive style has also meant his funds have been less affected in down markets such as the 2008 financial crisis.
This could be useful in the near future: the UK's departure from the EU could have a detrimental effect on UK share prices – even if the underlying companies are doing well. So now more than ever there is a strong argument for investing with a manager who as well as capturing upside can mitigate losses in falling markets.
"Neil Woodford's renowned ultra long-term approach has been tried and tested across a wide range of market conditions and has held up particularly well in tough markets," comment analysts at research company FundCalibre. "Neil is first and foremost a stockpicker, but has shown an incredible ability to correctly read the macroeconomic environment and avoid short-term market noise. His astute understanding of the macroeconomic environment, and preference for companies with transparent earnings, balance sheet strength and attractive valuations have seen him avoid many of the pitfalls that have beset other UK equity managers. He is well known for avoiding technology stocks during the dot-com crash [of the early noughties] and being out of banks long before the financial crash in 2008."
If Mr Woodford's performance is anything like it has been in the past this fund should deliver strong long-term returns – a reason why you should hold it for at least five years – as any other equity investment. In the meantime, it is paying you dividends while you wait. Even if you do not want the income you could hold the accumulation share class (GB00BLRZQC88) where income is reinvested rather than paid out, and boost your return.
So if you want a reasonable level exposure to companies that could receive a boost, via a manager that has made strong long-term returns and mitigated the effect of very difficult markets, then CF Woodford Equity Income looks like a good option. Buy.
CF WOODFORD EQUITY INCOME (GB00BLRZQB71) | |||
PRICE | 113.72p | MEAN RETURN | 8.81% |
IA SECTOR | UK Equity Income | SHARPE RATIO | 0.83 |
FUND TYPE | Open-ended investment company | STANDARD DEVIATION | 9.69% |
FUND SIZE | £8.23bn | ONGOING CHARGE | 0.65% |
No OF HOLDINGS | 129* | YIELD | 3.56% |
SET UP DATE | 02-Jun-14 | MORE DETAILS | woodfordfunds.com |
MANAGER START DATE | 02-Jun-14 |
Source: Morningstar, *Woodford Investment Management
Performance
Fund/benchmark | 6 month total return (%) | 1 year total return (%) | 3 year cumulative total return (%) |
CF Woodford Equity Income | -8.16 | 1.05 | 19.76 |
FTSE All Share | 0.78 | 13.68 | 26.43 |
IA UK Equity Income sector average | -0.16 | 12.55 | 23.67 |
Source: Hargreaves Lansdown/FE as at 24 November 2017
Top ten holdings as at 31 October 2017 (%)
AstraZeneca | 8.29 |
Imperial Brands | 6.19 |
Legal & General | 5.11 |
Prothena | 3.81 |
Lloyds | 3.35 |
Burford Capital | 3.32 |
Barratt Developments | 2.7 |
Purplebricks | 2.25 |
Provident Financial | 2.24 |
Taylor Wimpey | 2.17 |
Source: Woodford Investment Management
Sector breakdown (%)
Financials | 34.11 |
Health care | 27.49 |
Industrials | 16.76 |
Consumer goods | 13.32 |
Consumer services | 3.43 |
Technology | 3.18 |
Utilities | 1.11 |
Telecommunications | 0.92 |
Basic materials | 0.04 |
Cash | -0.36 |
Source: Woodford Investment Management