Mark Dampier: His funds might be big but Woodford keeps it personal

The Analyst

This week marked the 25th anniversary of the Invesco Perpetual High Income Fund, one of the most widely held funds in the UK. Performance has been nothing short of superb, so the fund retains a huge following – £1,000 invested at launch would now be worth £7,155, plus £3,616 of income.

All but eight months of those 25 years have been under the stewardship of the renowned Neil Woodford, and to my mind it is his refreshingly long-term philosophy that has brought success. To him, "long term" means 10 to 15 years, not just a few. It's an approach that allows him to look past the short-term noise and visualise the future of a business or even a whole industry.

The most spectacular example was tobacco stocks in the late 1990s. At the time most analysts felt the tobacco sector would face devastating litigation costs. Neil Woodford took a more sanguine view, feeling that these concerns were overplayed and that tobacco companies at least had the advantage of huge barriers to entry – after all, no one else was likely to set up a new tobacco company. The sector soared over the following decade as investors began to appreciate the growing dividends on offer.

Just as important as backing the right sectors is avoiding the disasters. In the late 1990s banks were the largest sector in Neil Woodford's portfolio, but by 2003 he had sold out, avoiding the worst of the sub-prime crisis in 2007-08. Even now he believes they are un-investable.

Perhaps even more famously, Mr Woodford avoided technology stocks during the internet boom in the 1990s. In fact he was castigated for doing so at the time as he underperformed significantly during that period. I remember him uncharacteristically banging his fists on the desk, saying there would be an almighty crash. Eventually he was proved correct. In this way Mr Woodford has been an excellent custodian of investors' capital. He has the courage to back his own conviction and stick with them – and more often than not he has been right.

However, investors' memories are short. One company recently recommended that investors sell Neil Woodford's funds on concerns they have grown too big to manage, and that he lacks the flexibility to move into mid and small caps. I found this rather depressing because it shows little understanding of how Mr Woodford operates. It is true he can't shift significantly into medium-sized and smaller companies running such a large fund – but he has never done so anyway, even when the fund was much smaller. I believe he can continue his long-term, disciplined approach successfully.

Smaller companies are, in fact, a minor part of this. Mr Woodford has 4-5 per cent of his Income and High Income funds invested in unquoted companies, small, early-stage enterprises where he is taking a 15-year view of them becoming much bigger businesses. This "private equity" facet of the fund is little discussed, but it has the potential to add some real value. Indeed Mr Woodford believes one or two of these holdings will start to mature over the next year.

Naturally Mr Woodford's prevailing views always attract interest, and they haven't changed much over the past few years. He feels pessimistic about the UK economy and favours strong companies in control of their own destinies – as opposed to those at the mercy of economic health. He has also felt for some time that there is great opportunity in the pharmaceuticals sector, which he describes as "profoundly undervalued". He has more than 30 per cent in healthcare stocks, a typically punchy position reflecting his level of conviction. Like tobacco in the 1990s, he believes it's a case of enjoying the high level of dividends and patiently waiting for other investors to recognise the potential.

While fund size can undoubtedly affect the investment process, I believe Neil Woodford's style allows him to run very large sums of money successfully. As ever, he has clearly articulated his views, so it is up to the individual investor to decide whether they agree or disagree with his stance – and invest accordingly. I retain a substantial amount of my own portfolio with his funds, and I regard this as a core holding. I am happy to ignore the short-term noise and continue to back one of the most successful UK managers of our time.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent

Suggested Topics
News
i100
Life and Style
fashion Designs are part of feminist art project by a British student
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
News
i100
PROMOTED VIDEO
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
tv
Sport
Scottish singer Susan Boyle will perform at the Commonwealth Games opening ceremony in Glasgow
commonwealth games
News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
News
Lane Del Rey performing on the Pyramid Stage at Glastonbury 2014
people... but none of them helped me get a record deal, insists Lana Del Rey
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
News
i100
Life and Style
tech
Arts and Entertainment
British author Howard Jacobson has been long-listed for the Man Booker Prize
books
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Sport
Louis van Gaal watches over Nani
transfers
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

    £300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

    Insight Analyst – Permanent – Up to £40k – North London

    £35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

    Test Lead - London - Investment Banking

    £475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

    Business Analyst - Banking - Scotland - £380-£480

    £380 - £480 per day: Orgtel: Business Analyst - Banking - Edinburgh - £380 - ...

    Day In a Page

    Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

    Noel Fielding's 'Luxury Comedy'

    A land of the outright bizarre
    What are the worst 'Word Crimes'?

    What are the worst 'Word Crimes'?

    ‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
    Can Secret Cinema sell 80,000 'Back to the Future' tickets?

    The worst kept secret in cinema

    A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
    Facebook: The new hatched, matched and dispatched

    The new hatched, matched and dispatched

    Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
    Why do we have blood types?

    Are you my type?

    All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
    Honesty box hotels: You decide how much you pay

    Honesty box hotels

    Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
    Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

    Michael Jamieson: Why weight of pressure rests easy on his shoulders

    The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
    Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

    The 'scroungers’ fight back

    The welfare claimants battling to alter stereotypes
    Amazing video shows Nasa 'flame extinguishment experiment' in action

    Fireballs in space

    Amazing video shows Nasa's 'flame extinguishment experiment' in action
    A Bible for billionaires

    A Bible for billionaires

    Find out why America's richest men are reading John Brookes
    Paranoid parenting is on the rise - and our children are suffering because of it

    Paranoid parenting is on the rise

    And our children are suffering because of it
    For sale: Island where the Magna Carta was sealed

    Magna Carta Island goes on sale

    Yours for a cool £4m
    Phone hacking scandal special report: The slide into crime at the 'News of the World'

    The hacker's tale: the slide into crime at the 'News of the World'

    Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
    We flinch, but there are degrees of paedophilia

    We flinch, but there are degrees of paedophilia

    Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
    The truth about conspiracy theories is that some require considering

    The truth about conspiracy theories is that some require considering

    For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn