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Neil Woodford - exclusive video and our latest view

Mark Dampier interviews fund manager Neil Woodford. Plus - we share our outlook for his CF Woodford Equity Income Fund.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

When a fund manager underperforms, investors are naturally keen to understand why, so they can make a decision whether to stick with the fund.

When the fund in question is managed by Neil Woodford, one of the highest-profile fund managers in the UK, the negative press it generates can be blown out of proportion.

To put things in perspective, our Head of Research Mark Dampier travelled to Oxford last week to interview Woodford. In this exclusive interview they cover:

  • Why Neil Woodford is more positive than most on the outlook for the UK economy and why he thinks this presents the most exciting opportunity he has seen for a long time.
  • His expectations for the fund’s dividend and what he hopes to achieve over the long term.
  • An update on the fund’s unquoted investments (those not listed on a stock exchange). Mark asks Neil about the risks and opportunities in this important part of the portfolio.

This article and video are not personal advice. Neil Woodford provides his own opinions in the video, our view follows below. Please also remember that dividends can vary, and should not be thought of as guaranteed income.

Read transcript

Our view

The CF Woodford Equity Income Fund isn’t a typical equity income fund.

It combines higher-yielding larger companies with higher-risk smaller companies, some of which are unquoted, meaning they aren’t listed on a stock exchange. The higher-yielding companies are expected to contribute the majority of the fund’s dividend income, while the smaller firms are expected to boost growth.

This is sometimes referred to as a ‘barbell’ approach.

It means the fund will perform quite differently from others in the sector and the broader UK stock market. The inclusion of smaller and unquoted companies limits the fund’s yield, so it’s unlikely to meet the requirements of investors who seek to maximise income.

The fund currently yields 3.65%, which is variable and not a reliable indicator of future income.

As for the unquoted companies, Neil Woodford sees an excellent long-term opportunity in this area of the market.

This is why 9.5% of the fund is currently invested here. He’s not currently adding to these investments in an effort to ensure they don’t make up more than 10% of the fund, which is the maximum allowed.

Indeed, over the next 12-18 months he expects the proportion of the fund invested in unquoted companies to reduce, as some of his biggest investments in this area seek to list their shares on the stock market. This is known as an Initial Public Offering, or ‘IPO’.

Investors should remember that while they can offer significant growth opportunities, small and unquoted businesses are typically considered higher-risk because their shares are difficult to sell. Smaller businesses are also more prone to failure than larger, more established companies.

Overall, we’re encouraged that Neil Woodford is sticking to his tried-and-tested approach. He combines economic views and individual company analysis to identify undervalued and out-of-favour sectors and companies. At present this manifests itself in significant exposure to UK domestic businesses and, to a lesser extent, small and innovative healthcare businesses.

The willingness to follow his convictions rather than the herd has seen him generate exceptional returns for investors in the past, but by its very nature this approach will result in periods of poor performance while other investors disagree with his views.

We believe it’s premature to write Neil Woodford off. His long-term track record has been exceptional and we continue to believe he’ll add value for investors over the long run.

As ever, please remember past performance is not a guide to the future. We always suggest investors diversify across funds with different styles, approaches and areas of focus. In common with most equity income funds, charges are taken from capital. This increases the yield but reduces the potential for capital growth.

The CF Woodford Equity Income Fund remains on the Wealth 150+ list along with all our other favourite funds across the major sectors.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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