Neil Woodford spent 25 years at Invesco Perpetual looking after more than £30bn of assets and is arguably the best known UK fund manager of the last decade. The CF Woodford Equity Income Fund launched on 2nd June 2014 and is now open for investment through the Fair Investment Fund Supermarket at 0% initial charge.
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According to official Investment Management Association (IMA) figures, UK Equity Income was the most popular sector in April after achieving record net retail sales of £500m, the highest seen in the IMA UK Equity Income sector since records began in 1992. So being in at the beginning of this new fund launch in the best-selling investment sector could be a rare and exciting opportunity for long term investors.
The CF Woodford Equity Income fund
Neil Woodford is one of the UK's best known fund managers and his performance whilst at Invesco Perpetual makes him one of the most successful fund managers of recent times. So when the news that he was leaving Invesco hit the headlines back in October last year, it was understandable why many investors took note.
Now he is back with the first fund from his new venture, the CF Woodford Equity Income fund, which will have the same investment approach he employed at Invesco Perpetual, targeting capital growth and a level of income. Mr Woodford said "I will run this new fund in the same way that I have always run money, adopting the same philosophy and the same long-term approach. My passion and energy have never been stronger." The fund is available now for investment via the Fair Investment Fund Supermarket as a new ISA, ISA transfer or non-ISA investment.
Expect no changes for income investing
While past performance is no guide to the future, under Mr Woodford's management Invesco Perpetual High Income ranked first place in the IMA UK Equity Income sector and there won't be any surprises is in his own equity income strategy, the CF Woodford Equity Income fund. "It would not be possible to completely clone the precise nature of my previous fund but the strategy will be the same with the same sector biases, the same prominent positions," he says.
One of Mr Woodford's well-known sector calls that he has no intention of reconsidering anytime soon is his avoidance of banks, describing the expectation that domestic UK names will be able to pay hefty dividends again as a "myth". "These banks don't have enough capital and too much leverage so the regulator will continue to grind away and they will either have to shrink their balance sheets or grow more capital," he adds. "It would be unrealistic to expect markets over the next 3-5 years to deliver anything like the returns of the recent past."
HSBC proves the exception to this rule as the only bank holding currently in Woodford's portfolios thanks to its "better capitalized and profitable business" and more attractive level of dividend.
Woodford is more optimistic on the outlook for another area of the financial services sector following the scrapping of annuities as part of the 2014 budget. L&G has played a sizeable position in Woodford's funds and he is comfortable the changes to annuities can bring benefit for its business. He says: "L&G will look less like a traditional life insurance company and more like a fund management business going forward. It might mean lower margins but what that might also mean is less capital intensity as well."
These changes should also see equities feature more prominently in the retirement market, Woodford argues. He adds: "The fact is most people retiring today have an average life expectancy of 20-25 years so why is it not appropriate to have an equity in their investment strategy with this horizon? "To my mind equities have a very important role to play in this space and I'm delighted that the Government has taken this bold decision, I think it is great for savers."
UK Equity Income sector
Investors may be a little more surprised to hear is that Woodford's new income fund will sit within the IMA UK Equity Income sector, especially after his own Invesco Perpetual High Income fund was recently kicked out of this sector for not meeting the appropriate yield target. Woodford is confident that the dividend and yield opportunity in the current market should allow the fund to stick to the yield target for "the foreseeable future."
However the manager says he will not be pressured into chasing yield and keeping income targets if this backdrop should change. He adds: "I recognise the importance of delivering yield and dividend growth to the client. But what is much more important is total return and protecting capital. Sometimes it can be entirely inappropriate to try and maximize yield and have to deliver an income target. We have to be vigilant about that."
A final word of caution
But with the FTSE continuing its upwards push, some might question if now really is a good time to set-up a UK equity fund? Although Woodford says he has never been interested in timing markets he believes that against this current backdrop a fund manager's role is likely to become "more challenging" as markets struggle to deliver the level of returns seen in recent years.
He says: "It would be unrealistic to expect markets over the next 3-5 years to deliver anything like the returns that they have in the recent past. So the job of a fund manager now is to make sure you don't expose investors to overvalued equities."
The manager also sounds caution on the current optimism surrounding the UK economy and when asked if the UK property market is becoming overheated responds in a nutshell: "Yes". He highlights consumer debt and the UK's balance of payments as particular risks to a sustainable recovery as well as external weakness in the Eurozone, emerging markets and even the US. There is plenty to worry about and although there is almost universal optimism around about UK growth I would voice a note of caution as to whether this growth is deliverable."
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Source: Fundweb interview, May 2014