Mark Dampier: Neil Woodford's fund may be new, but he has a great track record
Saturday 07 June 2014
If you are an avid reader of the personal finance and city sections of the newspapers it could hardly have escaped your notice that Neil Woodford is launching a new fund and investment management business. Mr Woodford is probably the nearest we have to a household name when it comes to fund managers, so the level of attention his new venture is attracting is not a surprise.
The majority of coverage has been positive, which given Mr Woodford's 25-year track record is to be expected. But, as with everything, there are always dissenting voices. And I see nothing wrong with having a different opinion, but only if it is based on fact.
Unfortunately, one or two commentators have tried to generate coverage by the selective use of statistics and highly spurious analysis.
In one piece, Mr Woodford's entire 25-year track record was put down to luck; another explained that the first 12 to 24 months of a new fund's performance is driven by luck, but investors should consider investing after six months. This is despite the fact you presumably have up to 18 months of "luck" still to endure.
The analysis also questioned why anyone would buy a fund with no track record. A good question at first sight, but in this case it ignores the fact that this particular fund manager has a 25-year track record. His new fund will be run along the same lines, with the same philosophy, objectives and process. Investment performance rests with the fund manager, not the fund. It is complete tosh to suggest investors should wait for the fund to build a track record when the manager behind it has one of the longest track records in the industry.
Those who consider Mr Woodford an average fund manager are only looking at his five-year track record, pointing out he underperformed the FTSE All Share and IMA UK Equity Income sector. However, this was mainly down to a poor period in 2009-10, and adjusting the numbers to look at either four or six years shows he comfortably outperformed.
Every fund manager experiences a poor year or two now and then. This highlights the importance of conducting a more in depth analysis than simply looking at short-term past performance numbers.
Mr Woodford is a long-term investor.
He often holds companies for 10-years plus, and his high conviction, contrarian approach results in a portfolio that looks and performs differently to peers' – and at times the stock market.
Any decent active fund manager knows this is the only way to achieve long-term outperformance and any decent analyst knows this approach will result in short-term bouts of underperformance.
One of Mr Woodford's most difficult times was during the late 1990s in the build-up to the tech bubble. Many commentators suggested investors sell the fund, but patience prevailed. By the end of 2000 the tech bubble had burst, as he forecast it would and his approach was vindicated.
Today, Mr Woodford continues to have unfashionable views. He does not believe that the UK economic recovery is sustainable, citing no real pick-up in manufacturing activity and a record trade deficit as evidence. Interestingly, he also believes UK banks are only halfway through repairing their balance sheets; so overall, while not being overly pessimistic, he remains cautious.
This view shouldn't necessarily put you off investing. He has held the same opinion for the past few years, but believes through a mixture of attractive yields and capital growth, investors will see good returns over the next few years from his portfolio.
Mr Woodford also remains keen on pharmaceutical companies, believing there is growth potential and exciting new drugs on the way. Investors remain sceptical about this, but perhaps Pfizer's recent bid for AstraZeneca wil; changed things.
I will return to the fund later in the year; Neil Woodford is one of the finest fund managers I have ever met, and I will be investing in his new fund in my SIPP.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit the Hargreaves Lansdown partner page
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