Income Focus Fund update, December 2017

Important Information

We want to make investing with us simple and straightforward for all of our clients.

Please select your investor type from the options below.

Alternatively you can register or log in to an existing account.

Please note that by making your selection here you are agreeing to the Woodford Investment Management Ltd Privacy Statement and to our Terms and Conditions.

Mitchell Fraser-Jones 19 January 2018 Est. reading: 3 min read

Home > Words > Insights > Income Focus Fund update, December 2017

The UK stock market finished the year strongly, following much the same pattern as for 2017 as a whole, with a narrow set of stocks, perceived as beneficiaries of accelerating global growth leading the index higher. Among the winners in the market’s popularity contest currently, are oil majors Royal Dutch Shell and BP, commodity businesses Rio Tinto and Glencore, and HSBC.

The sustained momentum of these index heavyweights has further exacerbated the gap between market valuations and the fundamentals that sit beneath them. It also led to a continuation of the challenging performance backdrop for the fund, which delivered a decent positive return but struggled to keep pace with the overall market.

Core holdings in Legal & General, Imperial Brands, Astra Zeneca and Lloyds, which together make up more than a fifth of the portfolio, all performed well in December. Legal’s announced the sale of its Mature Savings business (a mix of old products including with-profits and insurance based pensions which have largely been closed to new business for some time), with the proceeds to be retained to accelerate growth across its key businesses. It also confirmed it was on track to deliver a record year for earnings and profits.

Meanwhile, some of the portfolio’s more domestically-exposed businesses also delivered a positive contribution to returns, perhaps buoyed by the positive progress delivered in the Brexit talks. Shares in housebuilders Barratt Developments, Crest Nicholson and Taylor Wimpey, property companies British Land and NewRiver Retail and automotive-related businesses Redde and AA, for example, all benefited from a more favourable environment than of late, but in our view, remain at very depressed valuation levels.

At the other end of the spectrum, Capita performed poorly, following the release of its interim results. Although the results were broadly in line with expectations, there were a number of complicating one-off elements and a mixed outlook statement, which came at a time when investors are keen to see clearer evidence of recovery. The shares declined by 12% on the day of the results which looks very harsh to us in the context of Capita’s already low valuation. The shares yield over 7% here which suggests that some investors fear a dividend cut may be required. With a new chief executive now in place, clearly that eventuality cannot be completely ruled out, but having met Jon Lewis during the month, we are reassured that decisions around capital structure and the dividend will be informed by a clearer long-term strategy for the business, something we expect to hear more about later this year. In the meantime, we have maintained the portfolio’s exposure to this business, seeing the potential for significant value creation in the future as Capita is restored to the high quality, successful and well-run business that it used to be.

Saga’s shares were also weak following a surprise trading update in which it lowered earnings expectations due to a more challenging trading environment in insurance broking and disruption from the Monarch Airlines administration. These headwinds and the requirement for additional investment to drive growth, contributed to a 30% fall in the share price. Although this is clearly a disappointment, we believe it is yet another over-reaction by the market and that the shares still offer attractive value, with a yield of around 7% well covered by free cash flow. We are satisfied that this dividend is safe, but it is now less likely to grow than we had previously expected.

In terms of portfolio activity, we continued to build on our strategy, increasing positions in a number of UK domestically-exposed companies, including Regional REIT, Capita and Bovis Homes.

Turning to the investment outlook, there are many reasons to be positive heading into 2018. We anticipate a very different investment environment to prevail in the year ahead, as macroeconomic conditions increasingly challenge the view of the world that is reflected in financial market valuations. As the year progresses, there will be many events and data points which provide evidence of the changing investment landscape. We will, of course, keep you informed of our progress as the year unfolds and we remain very confident of delivering very attractive returns against the backdrop of much more challenging market conditions more broadly.

LF Woodford Income Focus Fund
Download as a PDF

What are the risks?

  • The value of the fund and the income from it 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 annual management charge is charged to capital, so the income of the fund may be higher but capital growth may be restricted or capital may be eroded
  • The 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 fund may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits
  • The fund may invest in overseas securities and be exposed to currencies other than pound sterling

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund, 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.

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.

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 www.fundinfo.com.

© 2018 Woodford Investment Management Ltd.
All rights reserved.

Are you sure?

By disagreeing you will no longer have access to our site and will be logged out.

Privacy Preference Center

Experience Tracking

Lets our analytics service track you across our different websites and enables data sharing among our different marketing tools.

AMCV_[Tracker ID]@AdobeOrg (Adobe), [Tracker ID]@AdobeOrg (Adobe)
Adobe Analytics (helps us provide you with more relevant experiences and content based on your likely interests). Cookies: demdex, dextp, dpm, DST, DSTJS
Twitter personalisation (by better understanding how devices are related, Twitter can use information from one device to help personalize the Twitter experience on another device). Cookies: personalization_id
Heap Analytics (provides metrics on user behaviour and actions throughout the site). Cookies: _gid, _hp2_id.[Tracker ID],_hp2_props.[Tracker ID], _ga, _mkto_trk, optimizelyBuckets, optimizelyEndUserId, optimizelySegments, raygun4js-userid, _attribution_referrer, _csrf
Adobe Analytics (provides you with more relevant experiences and marketing messages based on your likely interests). Cookies: _tmae ,ev_sync_dd,ev_sync_yh,everest_g_v2,gglck

Traffic Metrics

Allows Woodford to aggregate information on website usage and popular content

_ga, _gid
Google Analytics (tracks and reports website traffic and user behaviour): Cookie: CONSENT
New Relic (application and server performance monitoring – allows us to spot problems with our website code and improve them to keep things running smoothly). Cookie: JSESSIONID
Adobe Analytics (provides you with more relevant experiences and marketing messages based on your likely interests). Cookies: __qca,__smToken, _ga, _mkto_trk, _rtbmedia

Search History

Populates the 'recent searches' section of the website navigation.

wf__recent_searches_untracked

Close your account?

Your account will be closed and all data will be permanently deleted and cannot be recovered. Are you sure?