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Woodford: my fund is poised for a ‘spectacular’ rebound

Written by: Danielle Levy
Well-known fund manager Neil Woodford has sought to silence his critics in a rare and frank interview, following a period of disappointing performance for his flagship UK equity income fund.

In an interview with the Financial Times, Woodford predicted a ‘spectacular’ bounce in performance over the next two years. This relies on his thesis that a recovery in undervalued UK stocks, particularly early stage pharmaceutical and technology companies, will take place post-Brexit.

“There is a dam that is about to be breached of inward investment into these businesses,” he told the Financial Times.

He also explained that moving away from his valuation-focused approach to picking stocks would represent a “fundamental betrayal”.

“We would not deserve to be in business if we did such a thing,” he added.

The fund manager notes that the best investment opportunities are not currently on offer in the large cap space but feels that it is difficult to make this argument in public because he runs the risk of being shot down.

With this in mind, he believes investors are being influenced to make bad investment decisions as a result of “misinformation and lazy commentary”.

“There is a mountain of fake information and fake analysis out in the marketplace which, in the end, does impact investors’ decisions detrimentally. So, that’s what pisses me off,” he told the Financial Times.

Performance disappoints

The LF Woodford Equity Income fund has experienced a challenging few years, which has resulted in it falling in size from £10.7bn during the summer of 2017 to £4.8bn at the end of January 2019.

Over the past three years the fund has posted a loss of 6%, which compares to a 25.4% return by the average fund in the Investment Association’s UK All Companies sector, according to FE Analytics. The fund has a historic dividend yield of 4.1%.

In a bid to improve performance, the investment team took the recent decision to sell five unquoted shares to listed sister fund, Woodford Patient Capital Trust, for £72.9m plus an additional £6m in cash. In exchange, it has received shares which equate to a 9% stake in the investment trust.

Time for a turnaround

Speaking to the Financial Times, Woodford acknowledged that his eponymous company, Woodford Investment Management, needs to stem outflows from his flagship fund – otherwise they run the risk of being out of business in “about two-and-a-half years”.

Investment platform Hargreaves Lansdown has kept faith in Woodford by keeping his Equity Income and Income Focus funds on its Wealth 50 recommended list.

Hargreaves Lansdown’s investment analyst Kate Marshall recently admitted it had been an uncomfortable time to hold the Woodford Equity Income fund, adding: “Our own conviction has been tested.”

Nevertheless, she believes there is a greater probability that Woodford will turn around performance and deliver attractive returns over the years to come.

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