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

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
news
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Sport
SPORT
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
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

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
    Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

    Marian Keyes

    The author on her pre-approved Christmas, true love's parking implications and living in the moment
    Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

    Bill Granger's Christmas Eve fish feast

    Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
    Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

    Rodgers fights for his reputation

    Liverpool manager tries to stay on his feet despite waves of criticism
    Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

    Amir Khan attacks the Taliban

    'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
    Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

    Michael Calvin's Last Word

    Sepp Blatter is my man of the year in sport. Bring on 2015, quick