Not for the first time concerns have been raised about the size of Neil Woodford’s income funds, which are now over £20bn. This week’s Sanlam Private Investment income study has recommended investors sell the funds in favour of a number of smaller income vehicles.
SPI says Woodford’s negative view of the economy has led to a focus on very large stocks, with concerns about his funds’ ability to react quickly to changing economic circumstances.
Some advisers have questioned the added active manager value achievable given the investment limitations caused by the size of the two funds.
Given Woodford’s bearish economic views, it is no surprise the funds have underperformed over the past year, especially with his reluctance to invest in financials. However, the two funds have beaten their sector average over three and five years.
Those investors seeking to benefit from any extended market rally will no doubt see more attractive equity income propositions. For investors where the level of income is of over-riding importance, such as many entering the at-retirement market, Money Marketing’s recent annual income study shows there is a range of propositions offering consistently higher income levels.
However, Woodford’s investment philosophy has never been about beating the crowd on income, nor worrying about being behind the performance curve at certain points in the economic cycle. His focus on big, dependable, large-cap stocks producing regular dividends will resonate with investors stung by past market crashes and who agree we are far from out of the economic woods.
Woodford’s refusal to become involved in the tech bubble is well remembered by those who gained, and those who suffered significant losses, when the bubble burst.
It is too simplistic to equate today’s markets with those of the late 1990s, but the instinct to steer clear of such trouble is a precious commodity.
Worries over fund size raise serious questions for advisers to debate and keep an eye on. There are other more bullish equity income vehicles firms may want to dovetail with, or investment philosophies advisers may believe are more suited to the economic climate. But it would be a brave person who bets against Woodford managing to keep investors happy with consistent growth and income levels long into the future.