What’s going wrong with Woodford?

After 30 years at the top, Provident Financial’s just the latest disaster to hit star fund manager

Decades of top-quality stock picking have led Neil Woodford to become one of the most well-known and highly respected fund managers in the UK.

But with Provident Financial this week becoming the latest disaster to hit Woodford’s investments, is it now time to ask whether the golden boy has lost his Midas touch?

Indeed, over the last year, Woodford’s popular equity Income fund has lost 2.6pc of savers’ money, which makes it the worst performing fund among all of its peers.

It is also the worst performing equity Income fund over the last six months and three months.

This has led some experts to worry whether Woodford bit off more than he could chew when he left Invesco to set up shop on his own in 2014.

The manager saw a whopping £326m slip through his fingers in just one day when shares in doorstep lender Provident – in which he owns a 19pc stake – plummeted 66pc.

The firm issued its second profit warning in two months, axed its dividend and announced the departure of chief executive Peter crook.

Woodford staunchly defended the firm, shifting the blame back to the market, saying: ‘I believe Provident Financial shares started the day undervalued, and have become even more so as a result of the market’s reaction.’

He added: ‘I am hugely disappointed by what has happened to the consumer credit division but I continue to believe that it will get back on track.’

several of his investments have also gone south in recent months.

Last month, drug pioneer astraZeneca – the biggest holding in Woodford’s equity Income fund – suffered its largest-ever one-day fall, plummeting by 15pc, which followed the failure of a highly-anticipated lung cancer drug trial called Mystic.

Inventions firm allied Minds, in which Woodford is the largest shareholder with a 27.8pc stake – also suffered its largest ever one-day fall in april after cutting funding for seven subsidiaries.

The firm is down by 74pc so far this year.

This month shares in roadside assistance firm aa – 13.1pcbacked by Woodford – tanked after its chief executive was sacked after an alleged bar brawl.

Imperial Brands is down 9.9pc this year after regulatory changes by the Us health watchdog.

and on the same day as Provident fell, monitoring device maker sphere Medical Holding –a smaller Woodford bet – fell more than 80pc after saying it could run out of cash by next month.

WHEN

assessing the performance of fund managers it is important to remember they usually invest for the long-term. savers are usually advised to leave money in a fund for at least three years.

and despite acknowledging his funds could be rocked by market volatility in the coming months, this very much remains the message from the Woodford camp, which released a bullish update to investors earlier this week.

‘ Our long- term approach to investment management is encapsulated in a patient capital investment style,’ Woodford said. ‘ We look beyond market volatility and focus on the long-term fundamentals of businesses.’

although it may have had a shocker over the last year, the Woodford equity Income fund has grown savers’ cash by 27.6pc since opening in June 2014.

This compares to an average return of 24pc among his peers. However, the manager’s Patient capital trust has made just 3.1pc for investors over the last year, compared to its peers’ average return of 15.8pc.

since launching in april 2014, it has lost 3.2pc, while peers have made 20.8pc. Ben Yearsley, director at shore Financial Planning, said Woodford could be focusing too much on small companies.

He added: ‘Maybe he should spend more time on the large cap stocks as it is these that have been causing all the recent problems.

‘Prior to these recent falls in performance we had made the decision to reduce the exposure to the Woodford equity Income fund.’

darius Mcdermott, managing director at chelsea Financial services, said Woodford’s preference for big investments puts him at greater risk of big losses.

He said: ‘If you look at his top ten holdings he really takes large positions in the stocks he favours compared to other managers. For example, he has 8pc in astraZeneca. Woodford’s approach is driven by the courage he has in his convictions.’

With Woodford launching a third fund – called the Income Focus fund – in april this year, Tom Becket, investment director at Psigma Investment Management, said some may feel he has attracted too much money and launched too many products.

However, Becket believes Woodford’s extremely strong record – a saver who invested £10,000 with Woodford in 1988 would now have more than £300,000 – means he could easily bounce back.

Woodford’s eye for gems can still be seen. He is the largest investor in estate agent Purplebricks, which is up more than 300pc since december 2015.

ACCORDING

to Jason Hollands, managing director at Tilney Investment Management, Woodford is a victim of his own high profile, which towers above that of most UK fund managers.

‘When he hits a bad patch, he is firmly in the limelight,’ said Hollands.

‘The truth is that even the very best fund managers will periodically go through periods of poor performance – legendary american investor Warren Buffett has had a few setbacks this year.’

Likewise, Laith Khalaf, senior analyst at Hargreaves Lansdown, said Woodford has always been able to reward long-term investors despite rough patches throughout his career.

He said: ‘People tend to focus on the poor performers because they make headlines, rather than looking at the portfolio as a whole.

‘In the short term, luck can play a large role in the outperformance or underperformance of an active manager.

‘But in the long term it is skill that shines through, and Neil Woodford has amply demonstrated that in a fund management career spanning 30 years.’