Neil Woodford: a summer in perspective

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Mitchell Fraser-Jones 6 September 2017 Est. reading: 20 min read

In June, the CF Woodford Equity Fund reached its three-year anniversary meeting investors’ return expectations over that time period. However, during July and August several of the fund’s holdings suffered significant share price weakness which has impacted the fund’s performance since. We have always encouraged dialogue with our investors and understandably some have been in touch, not only to express their disappointment, but also to seek answers as to why the fund’s performance has suffered. In the following video, Neil explains events and what they mean for the fund’s strategy…

2017: A challenging year so far...

Year to date

  • Woodford Equity Income Fund +0.59%
  • FTSE All Share index +8.21%
  • Underperformance -7.63%

Fund performance – year to 31 August 2017

Source: Financial Express, Woodford

Standardised performance (%)
to 30/09/15
to 30/09/16
to 30/09/17
to 30/09/18
to 30/09/19
LF Woodford Equity Income (C Acc) 13.05 10.62 0.59 -6.25 -31.45
FTSE All Share index 0.00 0.00 0.00 0.00 0.00

Past performance cannot be relied upon as a guide to future performance.
Source: Financial Express on a total return basis, with net income reinvested.

The fund’s performance may be compared against the following benchmarks (referred to as ‘comparator benchmarks’): The FTSE All Share Total Return Index is representative of the universe of assets in which the fund may invest and may assist investors in evaluating the fund’s performance against UK equity returns. The fund also uses the IA UK All Companies Equity Sector as a comparator as investors may find it useful to compare the performance of the fund with the performance of a group of the fund’s peers. Many funds sold in the UK are grouped into sectors by the Investment Association (the trade body that represents UK investment managers). The comparator benchmark has been selected as we consider it assists investors in evaluating the fund’s performance against the performance of other funds invested in similar assets. The fund is not constrained by the benchmarks and may take positions that differ significantly from the benchmarks.

...But it's not just about stock specifics

  • Provident Financial accounts for broadly half of underperformance
  • AstraZeneca, despite its Mystic trial data, has provided a positive contribution to the fund
Fund stock level performance — year to 31 August 2017
Stock Portfolio % Contribution %
AstraZeneca 8.51 +0.64
Provident Financial 4.83 -3.75

Source: Northern Trust

View the full stock contribution analysis (over 1 year to 30 June 2017)

...Market leadership has remained very narrow

  • 8 stocks account for over half of FTSE All Share gains this year (4.15% total return)
  • HSBC, Unilever, Diageo, Glencore, Rio Tinto, Vodafone, Prudential, British American Tobacco
  • 650 stocks make up the rest of the gains (4.06% total return)

2017 FTSE All Share index performers

Source: Bloomberg

UK domestic cyclicals remain out of favour

Valuation premium of UK domestic stocks vs UK exporters

  • +15.8% average since 2009
  • +10.6% before Brexit vote
  • -9.6% now

UK domestic stocks trade at a rare valuation discount to UK exporters

Source: Morgan Stanley

Healthcare bear market continues

FTSE All Share index sector performance

  • -0.6% Pharma & Biotech sector
  • +23.6% Mining sector

Two-year bear market in healthcare leaves stocks cheaper than they have been in many years

Source: Atlantic Equities

China has a substantial bad debt problem

China – estimated bad debt problems as % of GDP

Source: The MacroStrategy Partnership

“The short-term performance is painful and is difficult, but it isn’t a permanent loss of capital. I can, and I believe I will, rebuild the performance and rebuild that capital that we’ve lost recently.”

— Neil Woodford

Sources: FE Analytics, Woodford, Northern Trust, Bloomberg, Morgan Stanley, The MacroStrategy Partnership.

Data to 31 August 2017 unless otherwise stated.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address: 27 Old Gloucester Street, London, WC1N 3AX.

© 2020 Woodford Investment Management Ltd.
All rights reserved.

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