The Woodford Equity Income fund has celebrated its first birthday as the leading performer among the 85 constituents of the UK Equity Income sector. The significant size of the fund, currently £6.2bn, has not proved an obstacle to performance which has left many smaller competitors in its wake. A sparkling return for investors of 20.4% on a total returns basis in the year since its launch on 2nd June 2014 compares with an average gain of 8.9% for the sector and 6.8% for the FTSE All Share index over the same period. The fund has proved extremely popular with Willis Owen customers consistently topping the table of biggest purchases over the last year.
Mr Woodford left Invesco Perpetual in 2013 after 25 years to start his own business and has maintained the same strategy that proved so successful with his previous funds. As would be expected with low turnover, actively managed funds, Mr Woodford has endured periods of under-performance, notably when he refused to get involved in the technology boom around the millennium. Eventually his fears of a bubble were proved correct and his reputation not only survived but investors who stuck with him were handsomely rewarded. He is now widely regarded as one of the best equity managers of his era.
Mr Woodford has been cautious on the global economy over the past year and this is reflected in the absence of oil & gas, mining and bank shares in the fund while it has overweight positions in healthcare and tobacco stocks. He is considered a classic long term investor, adopting a ‘buy and hold’ strategy with a core of blue chip high yield stocks complemented by a tail of potentially high growth companies, particularly in biotechnology. Early stage businesses have been a positive contributor to performance and a decade of researching and investing in this under-exploited area of the market has enabled the team to establish a valuable network of contacts.
The success in these niche investment sectors led to the recent launch of the Woodford Patient Capital Investment Trust which will replicate the theme of targeting ‘industry disruptive’ investment opportunities. The trust has got off to a good start rising to a 13% premium to net assets (at 10 June 2015) and has already announced a series of significant stakes in small and unquoted companies, often investing alongside the income fund. This vehicle is considered to be considerably higher risk than the income fund with only a quarter invested in Blue Chips but investors have embraced the concept with the £800m raised at the Initial Public Offering exceeding early targets. The fact that there is no annual management fee and a performance fee only kicks in when returns exceed 10% per annum reflects Woodford’s confidence in the prospects for this area of the market.