15th October 2013
Online broker Fundexpert says that investors with more than 10 per cent of their portfolios invested in Neil Woodford’s Income or High Income funds should consider moving money to other fund managers.
Fundexpert’s managing director Brian Dennehy says that his general view is that fund managers are caretakers. If a fund is any good, and the fund manager leaves, the fund house will find a replacement with a similar approach, who is highly unlikely to upset the apple cart.
But he suggests that Woodford is the exception.
He says: “For example, if a fund manager is hugely successful simply because he is idiosyncratic, finding an adequate replacement is very difficult. Neil Woodford’s success over the last 15 years has, to a large extent, been based on one huge bet, what we have called the biggest and longest bet in fund management history – a consistently large overweight in defensives, in particular utilities, tobacco, and pharmaceuticals. Would any other manager have had the foresight to begin this strategy? And the fortitude to continue with it over such a prolonged period? I don’t think so.”
Dennehy says that Mark Barnett, who manages Invesco Perpetual UK Strategic Income runs an outstanding an fund. “But it is a fund of just £265 million. This contrasts hugely with £13 billion for Invesco Perpetual High Income and £10 billioon for Invesco Perpetual Income, both managed by Neil Woodford. And the Top 10 holdings for Mark Barnett do appear to reflect “the hand of Woodford”. What happens without that guiding hand? It is a huge unknown for investors.”
Dennehy says that the funds have lost around half a billion in the last year but says the risk for Invesco Perpetual now is that a significant leak could turn into a flood.
“The Neil Woodford funds are outstanding, and are not going to become poor funds overnight. Nonetheless, there will be a hullabaloo about this for months to come and investors should consider what action to take in a more rational moment – now!”
If an investors holds no more than 10% of their portfolio value in Woodford funds, there is no need to panic.If more than 10% is held, alternatives should be considered.
He says that income investors should opt for funds with outstanding long term track records for income generation and says Artemis income is outstanding.
He says that growth investors should seek out funds with consistently outstanding outperformance over longer periods, such as M&G Recovery or Schroder UK Mid 250 or the Standard Life UK Opportunities which has ‘momentum’.