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Seeing Woodford for the trees

Who would be a UK equity income fund manager? I don’t mean from the point of view of quality of life, which is presumably no shabbier than that of any other manager, nor am I alluding to how the hunt for decent, sustainable and, ideally, rising yields is not as straightforward as it used to be. After all, these days, a portfolio yield of 4 per cent is generally deemed quite competitive, thank you.

No, what has been occupying more of my waking hours this week than is probably healthy is the degree to which most UK equity income managers feel appreciated or, dare one say it, loved.

Put it this way. Bearing in mind the philosophical doubt in some circles about whether a tree that has fallen in the forest without anybody hearing has actually fallen, I have often gone on to wonder whether, if a journalist writes an article and nobody reads it, does that journalist exist?

Extending that idea further now, if a manager is running a UK equity income fund but the world and his wife are buying Neil Woodford, how does that affect that manager? Furthermore, does the marketeer responsible for pushing their fund have any fingernails or hair left?

What set me thinking along these lines was an interview I did recently with Dan Roberts, the manager of Gartmore’s UK equity income portfolio.

“Valuations are my anchor,” he told me. “So, while the market has become transfixed with chasing recovery and looking at potential peak earnings and what companies could do in a more benign scenario, there are plenty of good blue-chip companies with strong franchises and good balance sheets which are sitting on attractive yields.”

Now, I am not suggesting – and nor, I think, would Roberts – that this is a brand new approach to equity income investment but that only reinforces the point I plan to make. For this is a pretty level-headed and persuasive way of dealing with a market that is behaving with all the decorum of a toddler on Sunny Delight – and Gartmore UK equity income is a £164m fund.

For a little context, let’s look at the sizes of the top six funds in the most recent White List from Principal Investment Management’s Income Study of last July. In reverse order, we have Royal Bank of Scotland equity income at £58m and then Aviva Investors UK equity income – until earlier this year, Roberts’s own baby – on £587m.

Next up is St James’s Place UK high income with £662m under management, and Artemis income with £2.7bn. Incidentally, and for even more context, that is about £100m more than Jupiter income, which as of July 2009 found itself a little off the pace in the upper regions of the Grey List.

But what about the top two funds, I don’t hear you asking. For, of course, they are Invesco Perpetual’s £6.4bn income and £8.6bn high income funds run by you know who – as, in case you weren’t aware, is St James’s Place UK high income. All in, call it £16bn between friends.

Now this week’s column is very much not about taking a pop at Invesco Perpetual and certainly not at Lord Woodford of Henley, who by any measure (except possibly those being used around the later stages of the tech bubble a decade ago) knows the working end of an equity income fund.

Nor would I dream of accusing advisers and private investors of a lack of imagination. Actually that is a complete lie – that is exactly what I am doing. Not every advisers and private investor, of course, for that would be a generalisation and all generalisations are false – including that one.

No doubt more than a few are doing a spot of mix and match, blending some Woodford with a bit of Roberts or maybe with a little Chris Murphy, his successor on the Aviva portfolio. However, at £16bn for Woodford v nowhere near £16bn for everybody else, you would have to say the maths is not entirely supportive of that theory.

What is the most tactful way of putting this? There are many good reasons for investing with Woodford but, as any value-driven manager worth his salt will tell you, doing so merely because every-one else is is not one of them.

Julian Marr is editorial director of



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