Is it time to sell my investment in the Woodford Equity Income fund? Breaking up is hard to do – especially on Valentine’s Day. I’ve had a particularly long relationship with the manager of this fund, Neil Woodford. Back in the early years of his career at Invesco Perpetual, our partnership was beneficial to say the least. I stuck with him through his divorce from there and supported him through the launch of his own company. After a promising start though, it hasn’t been quite the same.
I was having doubts about his reliability about this time last year (see my previous blog on five funds to sell). At the time, I put it on a wait and see. But now fund specialist Bestinvest has come out with its annual survey of ‘dog’ funds and poor old Neil is near the top of the pooch pops.
So how bad is it? All funds have a benchmark, usually a stock market index such as the FTSE All Share, which they try to beat by making more money for investors than the index did over any given time. To qualify as a Bestinvest dog, the fund must have consistently made less than its benchmark by at least 5% over a three-year period.
To be fair, Mr Woodford is a so-called contrarian investor who likes to invest in cheap, unloved companies which everyone else is ignoring in the hope they will come good. He made his name by avoiding overpriced technology stocks at the turn of the millennium and was covered with glory when that boom went sour. Could he be right again? So far it hasn’t worked. He is very optimistic about UK companies when the rest of the investing world has deserted them in the run up to Brexit. He’s also had a couple of companies in his portfolio blow up rather messily. This has hurt his returns. Bestinvest says that, over the last three years, investors would have got back £87 for every £100 they put in his Equity Income fund. That’s 28% less than the benchmark.
One skinted minted mum (hello SP!) asked me whether she should transfer her Woodford holding to another fund. It really is a difficult question. If you’re fed up and want to move, Bestinvest recommends Evenlode Income, Lindsell Train UK Equity and Liontrust Special Situations as good alternatives. [Remember to transfer not sell if your holding is in an Isa or you’ll lost the tax benefits.]
I, on the other hand, am giving Mr Woodford a last chance. Depending on what happens with the EU, the UK stock market could really take off and he will be proved right. I’m waiting to get to the other side of Brexit before making any decisions. After that, if there’s the slightest sniff of mangy mutt, I will be going walkies.
See our SMM beginner’s guides to investment for more help.