Written by Oliver Roylance-Smith
29th September 2015

Invest like the best – Neil Woodford’s investment winners

Having spent over 25 years at Invesco Perpetual looking after more than £30 billion of client assets, Neil Woodford is undoubtedly one of the UK’s best known fund managers. So when the announcement came around 2 years ago that he was intending to go it alone, it is perhaps understandable why this was one of the most eagerly awaited launches in UK fund management history. Now with more than 12 months trading history behind it, we take a look at how the fund has performed along with which shares have been the real star performers.

Investment strategy

When Mr Woodford was talking about the impending fund launch he confirmed that the fund would have the same investment approach employed by him whilst in his former role at Invesco Perpetual, targeting capital growth and a level of income by focusing on valuations and seeking out companies that can return sustainable dividend growth, as well as those which will be the dividend payers of the future. His new fund would also include small-cap stocks and unquoted companies.

12 months on…

The CF Woodford Equity Income Fund launched on 2nd June 2014, and although his performance whilst at Invesco Perpetual had made him one of the most successful fund managers in recent times, as the investment maxim goes, past performance is not a guide to future performance. Whether he could mirror his previous achievements was of course at the forefront of every investor’s mind. So how has the fund performed?

Top performance

Well, more than 12 months on, the widely followed fund manager has managed to accrue a portfolio worth close to £7 billion and with the performance to date that justifies investor’s confidence. In its first year, for the 12 months to the end of 30th June 2015, the fund returned 16.9%, compared with a 2.6% rise in the FTSE All Share Index, the fund’s investment benchmark. Not bad indeed.

Transparent investing

As with all investment funds the full performance data is there for all to see and updated monthly, but what is extremely unusual for a fund manager is that not only has Mr Woodford made public all holdings in his fund (most funds groups only publish the largest 10) but he has also gone further and published details of the contribution of every single share held, thereby allowing investors to see how much each share has made, or lost, during the first full year of his new fund.

The winners

The star of the show in the year to 30th June 2015 was Allied Minds, a FTSE 250 company that provides finance and other services to early-stage technology companies originating from the United Sates. The company provided 3.2% of the fund’s 16.9% growth (equivalent to 19% of the total growth), driven by a 187% rise in its share price over the year.

The biggest growth of any of the companies invested in by Mr Woodford came from 4D Pharma, a pharmaceutical company focusing on the development and bringing to market of a number of projects targeting new therapeutic products and services. Woodford has long been a fan of the pharmaceutical sector and this is one that certainly paid off. Its shares rose by 515% in the year, contributing 1.58% of the fund’s overall performance.

Other top performers within the fund include Prothena, a biotechnology company based in the United States and Redde, a specialist insurance and support services group based in Bath, returning 154% and 144% respectively.

The losers

The biggest drag on performance came from Drax, the owner and operator of the large coal-fired power station in North Yorkshire. The holding accounted for 1.6% of the fund but reduced overall fund performance by 0.98% after its shares fell by 44% over the period.

The biggest share price fall came from Rightster, a company aiming to simplify the distribution of live and on-demand video by the use of a cloud-based software platform. Unfortunately shares in the business fell by 74% over the period, reducing the fund’s overall performance down by 0.45%.

New investments and exits

Further study of the Woodford Equity Income fund reveals that the portfolio has grown from 61 stocks at launch to 99 currently. There have been 52 additions to the fund in that time, whilst 14 companies have been given the axe including the only bank to feature at the launch of the fund, HSBC. Royal Mail was the biggest addition over the year and accounts for 2.3% of the fund while interestingly, twenty of the new additions are companies in the Health Care sector.

Fund size and allocation

Mr Woodford attracted £1.6bn of investors’ money when he launched the Woodford Equity Income fund, some of which came directly from funds he had previously managed at Invesco Perpetual. His now not-so-new fund has swollen to £6.94n as at the end of August 2015 with 86% allocated to businesses based in the UK and the three biggest sectors of Health Care, Financials and Consumer Goods contributing to 70% of the fund’s holdings.

Weighting

The benchmark for the fund is the FTSE All Share Index and by comparison, the fund is significantly overweight in Health Care, 32.02% versus a sector benchmark of 8.57%, and Industrials, 15.23% versus 10.38%, the two combined totalling 47.25% compared to 18.95% for the benchmark. By contrast, the fund is significantly underweight in Financials, Consumer Services, Basic Materials and Oil & Gas, totalling 25.6% of the holdings versus a benchmark weighting of 55.4%.

Investment style

The outperformance of the fund during its first year certainly suggests a proven and distinctive approach. The fund aims to only invest when there is a compelling long-term opportunity – and not to invest in shares just to make the fund look more like the index. As Mr Woodford’s style is often to go against consensus in order to deliver long-term returns, it will at times behave very differently to the overall market, a point which should ultimately be born in mind before investing.

Investment objective

The investment objective of the fund is to provide a reasonable level of income together with capital growth, which will be achieved by investing primarily in UK Listed companies. The fund is very much focused on delivering attractive long-term returns for investors through investment in quality companies that can deliver sustainable dividend growth. Income is paid quarterly.

Potential investors

Potential investors should therefore be looking to have their capital managed rather than simply having exposure to the market as a whole via an index fund or tracker. The team at Woodford Investment Management believes that “active fund management adds value for investors and that this is never more true than in challenging economic conditions”.

This fund is an actively managed fund which has outperformed its benchmark in its first year by some margin whilst Neil Woodford’s previous track record is testimony to his ability to make the right decisions when conditions are tricky – but ultimately past performance cannot be used as a guide to what will happen in the future and so you need to satisfy yourself first whether he can continue in the same vein over the longer term.

Invest via the Fair Investment Fund Supermarket

The CF Woodford Equity Income Fund is available for investment through the Fair Investment Fund Supermarket at 0% initial charge. The fund is available for this year’s ISA allowance (maximum of £15,240 for the 2015/16 tax year) and we also accept Cash ISA and Stocks & Shares ISA transfers. Investors who have already used their ISA allowance can invest via our investment account. If you’re ready to invest, then you apply online here.

Find out more and how to invest in Neil Woodord’s Equity Income Fund »

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No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment depends on your individual circumstances and may be subject to change in the future.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Past performance should not be taken as a guide to the future and there is no guarantee that these investments will make profits; losses may be made.