Meet Neil Woodford. He has the Midas touch. Quite literally. He’s possibly the most famous fund manager in the UK right now – and he’s got a proposition for you. How does 5% interest on your money sound?
The new CF Woodford Income Focus fund looks tasty indeed. Don’t be put off by the grand name – this is an investment for Isa savers putting away £100 a month or a couple of thousand in a lump sum. You invest your money in between 20 March and midday on 12 April and receive one share per £1 of your money. Mr Woodford then aims to deliver five pence back per share in 2018 (not in this year because most of the payouts from large companies are done, you might see 2% to 3% in 2017).
Great – now let’s read the small print. None of these figures is guaranteed – they are all ‘targets’. Woodford Funds hopes the payout will ‘grow’ in the years after the 5% period which is slightly smoke and mirrors because it will anyway if the value of your original money rises: 5% of £200 is a bigger sum than 5% of £100. And, if that value falls, you’ll be out of pocket if the income of 5% isn’t enough to compensate for the drop. Plus there’s a 0.6% annual charge on the fund - so where’s that coming out of?
Then there's the fact that 5% is quite a punchy figure. Is it even possible to achieve? Well, if anyone can do it, it’s probably Neil Woodford. He built his reputation in the tech boom – not by investing in it but AGAINST it. He endured months of being torn apart by the financial press for avoiding dot.com shares only to be proved right when the bubble burst. And I, like thousands of other investors, have more than doubled my money in his funds over the years. But will I go into this one?
Probably not. Mr Woodford’s golden era was at Invesco Perpetual which he left to set up Woodford in 2014. I worry that he doesn’t have the depth of resources at the new place and that he’s spreading himself too thin with some pet projects (small biotechnology funds) as well as a big income fund. It doesn’t help that the aforementioned fund didn’t do so well last year, although, in his defence, Mr Woodford tends to underwhelm in frothy stock markets such as we have now.
Instead I'll be checking out some other income managers with decent form such as Francis Brooke with Trojan Income; Thomas Moore with SLI UK Equity Income Unconstrained; and Mark Barnett, who manages Mr Woodford’s old fund, Invesco Perpetual High Income. And I'll also continue with my regular saving into the Legal & General FTSE 100 tracker fund (see our guide here). It pays out about 3.5% annually and costs just 0.06% a year. Not so lip-smacking but definitely on the chicken soup level.