Who will be the next Woodford? this year public this year
As the star fund manager celebrates 25 years at the top, Emma Dunkley asks the experts to name his successor
Sunday 10 February 2013
Few managers are as renowned and successful as Neil Woodford, who has just celebrated 25 years at the helm of the best-performing UK equity fund.
Not only has his Invesco Perpetual High Income fund easily beaten markets over this time, returning a stellar 1,906 per cent, but it has far outstripped other investments – like property – by delivering almost three times the performance.
If you had invested £10,000 in Mr Woodford's fund when it was launched back in February 1988, your income would amount to £36,135.50 and your original investment would be worth £71,155 – meaning a total return of £107,291, according to the financial advice firm Hargreaves Lansdown.
You're probably wondering who the next big manager will be, so you can invest as soon as possible. But the million dollar question has no single answer, there are certain managers who show signs of having what it takes.
"What qualities do you need to be the next Woodford? You need a 'contrarian' or different approach," says Ben Willis at Whitechurch Securities. "You need to find those stocks that are out of favour, that are being ignored by other investors."
Focusing on buying companies when they're "cheap" is also important, says Mr Willis. "This goes hand-in-hand with the contrarian approach as stocks usually become cheap when they are unloved."
A manager who buys a stock and then holds on to it for a long period, allowing it time to generate consistent returns, is also important. Mark Dampier at Hargreaves Lansdown explains how Mr Woodford focuses on what will drive the company's dividend price and growth in five years' time, rather than just paying attention to the present.
"Sticking by your views and investment decisions can sometimes be lonely," says Mr Dampier. "Selling banks, once one of the biggest income producing sectors, was one of the most rewarding decisions Neil Woodford made. A manager with such high conviction is essential."
And aside from these points, being able to take on a lot of money and manage large funds is also vital, with Mr Woodford successfully running billions of pounds.
Who, then, are the managers that can deliver over the long-term and be the best in their field?
Stuart Rhodes at M&G
Both younger and less experienced than Mr Woodford, yet already running the multi-billion pound Global Dividend fund, Mr Rhodes has performed exceptionally well. He has delivered decent positive returns even in 2011-2012 when the market, and average managers in his sector, were in negative territory.
Mr Rhodes focuses on over-all return, finding companies that have the potential to grow their dividends consistently, while being undervalued by the stock market.
"Stuart Rhodes has done really well, through both the good and bad times. We've been so impressed –he's a real star of the future," says Darius McDermott, the managing director at Chelsea Financial Services.
Rather than just focusing on UK companies, Rhodes invests around the globe, expanding the opportunity to find dividend-growing firms. "Mr Woodford is utilising a decent chunk of his overseas allowance in his fund – there are lots of US and European pharmaceutical companies in there," adds Mr McDermott. "So if he's doing it, why shouldn't we, and be looking at a global income fund?"
Similarly to Mr Woodford, the M&G fund holds onto stocks for a while, focusing on quality companies like Procter & Gamble, allowing for dividend growth to come through.
Since launch the fund has delivered nearly 80 per cent – more than double that of other similar funds, says Mr Willis.
Michael Clark at Fidelity
"Mr Clark, who manages the Fidelity MoneyBuilder Dividend fund among others, has a similar style to Mr Woodford, but runs less money," says Paul Surguy, an investment manager at Sanlam UK. "There are similarities between the funds – although Mr Clark hasn't got as much invested in healthcare and has fewer stocks. I like his approach – like Neil, he's not a 'shout from the rooftops' kind of guy, but gets on with it. He looks for core, sustainable dividends that can also grow. It's a similar fund that can perhaps take up the mantle."
And it's not just in the good times that the fund does well, Mr Surguy adds. "He's managed to protect money when markets have gone down, which is very important – it's not just about growing capital. He's definitely one to look at."
Mr Clark manages around half a billion pounds, but Mr Surguy believes he can take on more, especially as he is supported by Fidelity, one of the largest investment houses with ample resources and manger support.
John Bennett at Henderson
"We think one superb and long-established manager whose process could be seriously scalable and take on a lot of money is John Bennett," says Jason Hollands at Bestinvest.
Bennett joined the firm in 2011 following its acquisition of Gartmore. "A combination of fallout from the departure of fellow Gartmore European star manager Roger Guy and the fact that, until recently, European equities have been out of favour means the book of assets he is managing, while sizeable, does not look stretching for a manager who focuses on large stocks," says Mr Hollands.
His retail funds, Henderson European Selected Opportunities, Henderson European Focus, and Henderson European Absolute Return, invest in large global businesses listed in Europe, such as pharmaceutical companies Novartis and Roche – holdings that are much like Mr Woodford's.
Alister Hibbert at BlackRock
"Alister Hibbert, who runs the European Dynamic fund, has really impressed us for a number of years," says Rob Burdett, a co-manager of a fund of funds range at F&C Investments. "He runs more than £1bn and has seen a lot of inflows over the last 18 months –even when Europe was out of favour. He's a great, solid stock-picker with a flexible 'dynamic' view on markets."
Mr Hibbert, who joined BlackRock in 2008, gained significant experience covering Europe at Invesco Perpetual. Over the past three years, he has returned almost 60 per cent, more than double the market, and this while the future of the eurozone was under threat and markets plummeted.
Leigh Harrison at Threadneedle
"The obvious answer to me, is Leigh Harrison," says Patrick Connolly of AWD Chase de Vere. "He's running a significant amount of money and, like Woodford, invests in big companies. Although he's not as defensive, he's not a million miles away."
Mr Harrison is also prepared, like Mr Woodford, to ignore some of the largest income-paying stocks and he is willing to focus heavily on certain sectors, says Mr Connolly. "Of the top 10 income-paying stocks in the UK, there are three or four that he doesn't hold at all," he adds. "And another key point is that what he's doing is scalable and can take in a lot of money. It's becoming our default UK equity fund."
Emma Dunkley is a reporter at citywire.co.uk
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