Neil Woodford has made headlines in the last few days after the under-fire portfolio manager gave an interview with the Financial Times. In the interview, he discussed his recent poor performance, and also made some predictions about the future. If you’re invested with Woodford, here’s what you need to know.
Heavy withdrawals could be terminal
Worryingly, Woodford said that his flagship Equity Income fund could actually go out of business in two-and-a-half years if he fails to stem the heavy withdrawals that the fund has experienced recently.
Investors continue to pull money out of the fund at a rapid rate, due to the fact it has underperformed badly in recent years, and it has now registered 21 consecutive months of net withdrawals, where more money has been taken out of the fund than put in. That’s clearly not good for Woodford, as constant withdrawals make the portfolio management process more difficult.
At its peak in May 2017, the Equity Income fund was worth around £10.2bn, yet assets have since declined to just £4.5bn.
Investors are making bad decisions
Interestingly, Woodford blamed “misinformation” and “lazy commentary” for the investor withdrawals, saying that this is pushing investors into “appallingly bad” investment decisions.
Woodford is clearly not happy with what’s being written about him at the moment, stating: “There is a mountain of fake information and fake analysis out in the marketplace which, in the end, does impact investors’ decisions detrimentally. When clients are saying, ‘nah, we want our money back now because we’d much rather be investing in these things that have gone up’, that, for me, is a frustration. I think they’re making a poor investment decision.”
A rebound could be on the cards
Woodford also said that he believes he can turn things around and that he is expecting a “spectacular rebound” in the next two years. Adamant that his valuation-focused stock selection process will come good, the portfolio manager said he will be sticking to his strategy, as to do anything differently now would be a “fundamental betrayal.”
Avoiding large-caps
Finally, Woodford also said that investment opportunities were “absolutely not” in large-cap stocks, which explains why his funds have more of a small-cap focus these days.
What’s the takeaway?
So, what should investors take away from this interview? Is it time to pile into the Woodford Equity Income fund if he is predicting a spectacular rebound? Personally, I don’t see much appeal in the fund at the moment.
As I’ve written before, I’m not a fan of Woodford’s current investment style, as I think the Equity Income fund has too much focus on unproven speculative stocks and not enough on solid, reliable, dividend-paying companies.
If I’m buying an equity income fund, I generally want to see a portfolio of blue-chip stocks that pay regular dividends. Yet when I look at Woodford’s holdings, that’s not what I see. Instead, the fund holds a number of companies that are unprofitable or don’t pay dividends. Overall, I think there are better equity income funds out there right now.