Fund of the week: Should you follow Woodford?

Neil Woodford
Neil Woodford’s fund holds a few surprises

Star fund manager Neil Woodford has revealed all 61 stocks in his new CF Woodford Equity Income Fund. Many are long-term Woodford favourites, but there are a few surprises too (you can see the full top ten below).

The fund is similar to the two income funds Woodford ran at Invesco Perpetual. As before, he is investing heavily in pharmaceutical and tobacco stocks. He likes these because they deliver reliable, growing cash flows.

The one surprise in the ‘top ten’ is Imperial Innovations, which  commercialises technologies developed at British university labs. Many income funds wouldn’t invest in a company like this, as it pays no dividend. But it’s clearly a favourite theme of Woodford’s – outside the top ten, he has invested in several other technology stocks. In 11th place you’ll find Allied Minds (LSE: ALM), which commercialises innovations from US universities.

There are several biotechs too, including E-Therapeutics (LSE: ETX), Vernalis (LSE: VER) and Reneuron (LSE: RENE). None pays a dividend. Yet Woodford still expects the fund to pay a 4% yield. Should you invest?

Woodford has an outstanding long-term record. If you had put £1,000 in his Invesco Perpetual High Income Fund in 1988, it would have been worth just under £25,000 when he gave up the fund earlier this year.

He’s arguably the most successful working fund manager in the UK. But in recent years, his performance hasn’t been so strong. According to Citywire, he’s the 19th best-performing equity income manager over the last three years, of a field of 73 – decent, but not amazing. And the man who has taken over Woodford’s old funds at Invesco Perpetual, Mark Barnett, comes fifth in that list.

Charges are pretty much as you’d expect – on most investment platforms, you’ll pay a 0.75% annual management charge, although it’s 0.6% via Hargreaves Lansdown.

But if your priority is low charges, you would do better with the Vanguard FTSE UK Equity Income Index Fund. This passive fund, which tracks an equity income index, has an annual charge of just 0.25%.

The CF Woodford Equity Income Fund top ten holdings
Company Type of business % of fund
AstraZeneca (LSE: AZN) Pharmaceuticals 8.3
GlaxoSmithKline (LSE: GSK) Pharmaceuticals 7.1
British American Tob’cco (LSE: BATS) Tobacco 6.2
BT (LSE: BT) Telecoms 6
Imperial Tobacco (LSE: IMT) Tobacco 5.3
Roche (SIX: ROG) Pharmaceuticals 3.9
Imperial Innovations (LSE: IVO) Financials 3.6
Reynolds American (NYSE: RAI) Tobacco 3.6
Rolls-Royce (LSE: RR) Aerospace/engineering 3.5
Capita (LSE: CPI) Outsourcing 3.4

 

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