Year-to-date roundup

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Mitchell Fraser-Jones 1 March 2018 Est. reading: 8 min read

Year-to-date Roundup

Mitchell Fraser-Jones
1 March 2018

“We may now be in the foothills of a profoundly different market environment. Fundamentals have not mattered recently but they should start to matter more from here.”

Neil Woodford

The Woodford roundups are changing shape. We will be providing shorter, more regular updates on macroeconomic and stock specific events, which will be published as they arise, with the roundups collating the highlights. What follows below represents something of a transition, covering January and February 2018 but we will revert to a monthly communication from here, published at the start of the subsequent month.

It has been a challenging start to the year for the funds and for markets more broadly. In January, we saw a continuation of the themes that have driven markets for much of the last two years now, with momentum – the habit of buying assets when they have risen in price, and selling assets when the price has fallen, with little or no regard paid to the fundamental value of those assets – firmly in the driving seat as far as share price behaviour was concerned.

China's role in market volatility

The Bigger picture

You will see from the updates in the Bigger Picture that the fundamental investment landscape continues to evolve very much in the direction we have anticipated, and have positioned the funds for.

A focus on unquoted

Since launch, the average unquoted holding level in LF Woodford Equity Income has been around 7.5% and over the past six months this has risen to around 9.5%. As Neil says in the video below it is a level he is very comfortable with and it is an area that Neil continues to have high conviction for.

Collectively, the unquoted element of the Woodford Equity Income Fund – which provides price stability in volatile markets – has provided a meaningful contribution to the fund since launch. Neil remains confident in the quality of the unlisted stocks and the value they bring – and will continue to bring – to the portfolio.

LF Woodford Equity Income Fund since inception

LF Woodford Equity Income Fund since inceptionAverage weight Unquoted Unquoted now listedContribution as % of total return Unquoted Unquoted now listed7.47% 1.21% 16.82% 11.93%

This is a % proportion of fund’s total return, not the actual total return delivered. On an annualised basis, the unquoted holdings have delivered 1.13% per annum of the fund’s 6.71% per annum since inception. Past performance cannot be relied upon as a guide to future performance.

Source: Woodford on a total return basis, gross of fees, using closing prices to 31 January 2018.

View the standardised performance table

On Recent Market Volatility

Global stock markets suffered steep falls in the first few days of the month, before stabilising and staging a partial recovery. We believe this is the start of what we’ve been talking about for several months now and, although it remains too early to suggest that this is a definitive turning point for the fortunes of the Woodford portfolios, things are playing out broadly the way we have anticipated.

Some form of market correction was inevitable, but the exact nature and trigger of a correction is always unpredictable. One thing that is predictable in a dramatic market sell-off, however, is that it is largely indiscriminate to start with but it becomes more nuanced in the weeks that follow.

“How do you cope with the criticism for your recent underperformance?”

Interactive Investor interviews Neil Woodford

Pessimism towards UK equities is close to post financial crisis lows

Source: BofA Merrill Lynch Global Fund Manager Survey, Woodford

Net overweight/underweight (100 = 02.18) UK index vs World index performance Fund managers overweight UK (Net %) 16015014013012011010090 403020100-10-20-30-40 98 00 02 04 06 08 10 12 14 16 18 Big short

Gravity prevails

Fundamentals always eventually have a gravitational effect, which pulls share prices into closer alignment with reality. This is an inevitable consequence of the way that financial markets work and have always worked – fundamentals matter in the long run. In turn, that is why long-term fundamentals always drive our investment decisions and, with these in mind, we have crafted portfolios capable of delivering attractively positive long-term returns, despite a more challenging investment backdrop more broadly.

View the full portfolios:

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What are the risks?

  • The value of investments and any income from them may go down as well as up, so you may get back less than you invested
  • Past performance cannot be relied upon as a guide to future performance
  • The ongoing charges figure is charged to capital, so the income of the funds may be higher but capital growth may be restricted or capital may be eroded
  • The funds may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits – some of these security types could increase the funds’ volatility and increase the level of indirect charges to which the funds are exposed
  • The funds and trust may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the sterling value of these investments and the income from them, to fluctuate
  • The LF Woodford Income Focus Fund will be invested in a concentrated portfolio of securities – the fund is not restricted by reference to any geographical region, sector or market capitalisation
  • The LF Woodford Equity Income Fund and the Woodford Patient Capital Trust may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value
  • The price of shares in the Woodford Patient Capital Trust is determined by market supply and demand, and this may be different to the net asset value of the trust. This means the price may be volatile in response to changes in demand
  • Long-term outcomes are more binary – extremely attractive rewards for success but some businesses will inevitably fail to fulfil their potential and this may expose investors to the risk of capital losses
  • Young businesses have a different risk profile to mature blue-chip companies – risks are much more stock-specific, which implies a lower correlation with equity markets and the wider economy – it can take years for young businesses to fulfil their potential, this investment requires patience

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund – or Key Information Document (KID) for the trust – and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice.

The Woodford Patient Capital Trust currently intends to conduct its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund’s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at


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 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

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