Neil Woodford, one of the UK’s most celebrated fund managers, has dramatically quit Invesco Perpetual, his home for 25 years, in order to go it alone.
Woodford, perhaps Britain’s most influential investor, manages more than £30bn on behalf of savers, with many using his funds as core holdings in pensions and stocks and shares Isas.
He announced his intention to step down in April 2014 and revealed plans to set up his own investment company soon after.
The move presents a dilemma for holders of his funds, with his stock market listed Edinburgh Investment Trust falling over 5% in value as the markets digested the news. There are also fears that Woodford’s flagship Income and High Income funds could face a mass exodus.
Neil Woodford: what’s all the fuss about?
Neil Woodford has built a reputation as a safe pair or hands with both financial advisers and DIY investors seeking regular income and long-term capital growth from their investments.
Most fund managers fail to beat the market consistently but Woodford is an exception. Invesco Perpetual High Income has given investors a return of 219% over 10 years to the end of September, with dividends reinvested, versus 127% for the FTSE 100. He has also outperformed over three- and five-year periods.
Woodford’s strategy, like other managers in the Investment Management Association’s UK Equity Income sector, is to invest in large companies that pay attractive dividends.
But unlike some of his peers, some of Woodford’s biggest decisions, controversial at the time, have proven prescient. He chose to avoid technology stocks when they were all the rage amid what later became known as the dot com bubble and he sold out of bank shares before the financial crisis.
Neil Woodford: what should investors do now?
Those holding a Woodford fund in their portfolio face a big decision. Do they keep the faith in the belief that Woodford’s investment philosophy will live on with his successor, Mark Barnett? Or do they consider alternative equity income funds?
There is sure to be an increase in marketing activity from rival fund groups in the coming months and an increasing number of low-cost tracker funds that have a bias towards dividend paying shares are available.
In the short term, there should be little change with Woodford’s range of funds. They remain under his control until April and, in any case, the underlying portfolios are unlikely to change significantly.
It’s also important to note that the flagship Income and High income funds, unlike the Edinburgh Investment Trust, are not traded on the stock market, meaning prices are not influenced by sentiment.
Those who invested in a Woodford fund through an independent financial adviser can contact them to discuss a review of their investments.