Has Neil Woodford lost it? He doesn’t think so

Star fund manager Neil Woodford has responded to his critics in a series of videos posted on his website following a spell of poor performance.

It has been a summer to forget for Woodford. His firm - Woodford Investment Management - owned 19.9 per cent of the doorstep lender Provident Financial, which saw its share price tank following a number of profit warnings last month.

The largest position in Woodford’s portfolios, pharmaceutical company AstraZeneca, also took a hit, seeing its share price tumble by over 15 per cent on 27 July following the failure of a drug trial. The share price has since been staging a recovery, but is still 4.2 per cent in the red.

Responding to the charge that he had ‘lost it’, Woodford points out that ‘those very same words were used about me in late 1999 and early 2000 as a result of the underperformance that I was enduring at that time.’

‘Investors are free to believe I have lost it,’ Woodford adds. ‘But I don’t believe I have lost it. I believe I have the right portfolio [and] the right strategy to deliver the right returns to our investors over the medium and long term.’

While performance has been disappointing in the short-term, he noted that investing is a ‘long game’. He adds: ‘I’ve always believed that and I’m not going to cut and run away from the strategy and the investment discipline that I [have] followed for all of my investment life.’

A similar defence of Woodford was recently put forward by Nick Dixon, investment director at Aegon: 'Woodford has a long track record of strong performance and, while the fund has under-performed over 2016-17, investors should look at performance over longer time periods.’

Woodford’s long-term record, Dixon noted, is ‘driven by contrarian positions which led to short term blips, e.g. underweight technology in 1999-2000 and underweight banks in 2005-07,’ but ultimately long-term gains.

In another video, Woodford responded to concerns that he spends too much time focusing on early-stage companies.

While noting that five out of seven of his team are focused on the early-stage portfolio, he said that he himself does not focus too much on early stage investments and instead takes into account the whole ‘investment universe.’

Despite the disappointments his funds have faced, Woodford remains confident that investors will see a bigger dividend payment than in 2016. The dividend, he predicts, will be in the low to mid-single digits.

‘We were somewhat ahead of that…before the Provident Financial disappointment, so despite that I’m confident we’ll deliver what I said we were in terms of income growth.’

Ben Yearsley, director of Shore Financial Planning, agrees that Woodford has not ‘lost it’.

‘All good fund managers go through periods of underperformance, often lasting for a year or more,’ he noted.

However, Yearsley did raise concern about Woodford Equity Income fund’s exposure to small and micro cap companies: ‘These tend to be more time-consuming companies to both analyse and follow.’ While such companies are well suited to Woodford’s Patient Capital Trust, in Yearsley’s view ‘they shouldn't be in the mainstream equity income fund.’

Yearsley also noted that perhaps Woodford ‘should spend more time on the large cap stocks as it is these that have been causing all the recent problems.’ However, he said: ‘Has he lost it? Of course not, but I do think investors should ensure they know what they are investing in.’

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