Why Woodford has not lost his magic touch

. . . despite UK’s star stock picker seeing a series of huge bets going wrong spectacularly

NOT so long ago, it seemed like everything Neil Woodford, Britain’s most famous fund manager, touched turned to gold.

Over the years he has acquired an almost god-like status in the investment world for his ability to make his investors considerably richer.

In fact, if you had invested £10,000 in Woodford’s fund 30 years ago, when he first started managing money, you would be sitting on a pot worth more than £290,000 today.

But a series of high-profile stock picking clangers has left his reputation in tatters and many investors asking whether this so-called ‘star manager’ will shine again. This week he suffered another disaster when – as the biggest shareholder in AA – he took a £28m hit when shares sunk.

Woodford held 86.7m shares in the roadside recovery firm – but the next day he bought a further 5.2m, a clear signal he believed the share falls were overdone.

This is not the first time Woodford has found himself in a crisis. There were calls for his head in the late 1990s when, then at Invesco Perpetual, he refused to follow the crowd and invest in technology start-ups.

AT first his performance suffered. But he was vindicated when the so-called ‘tech bubble’ popped and a lot of fund managers lost money.

But this crisis is different. Instead of being castigated for sticking to his guns, it is because of a series of disastrous investments. Last month Woodford took a reported £40m hit when Capita, the outsourcing firm, suspended its dividend. Before that, Woodford was wrong-footed when doorstep lender Provident Financial issued a profit warning and when one of Astrazeneca’s cancer drugs disappointed in trials.

He was caught out when shares in cigarette maker Imperial Brands – the biggest holding in Woodford’s fund – tanked after the US drug regulator announced plans to cut the amount of nicotine in cigarettes.

All in all, it has turned out to be a disastrous year for the veteran manager. A £10,000 investment in his flagship Woodford Equity Income fund a year ago would be worth just £9,108 now. But even this is not as bad you may think. His nearest rivals in the equity income sector have also taken a hit – Woodford’s old fund at Invesco is down even more than his. That does at least shine a light on his real performance.

Since Woodford set up his own asset management firm in 2014, he has taken a shine to smaller, riskier companies – many of them unlisted – that eat up a lot of research time.

Some argue it means he has taken his eye off the ball when it comes to his bigger picks, some of which have struggled.

Ben Yearsley of adviser Shore Financial Planning said that by having such big positions – 6.7pc of the fund is invested in Imperial Brands – Woodford’s mistakes look worse.

However, he added: ‘There are some things you just can’t predict. Who could have known Astrazeneca’s cancer drug was going to disappoint in tri- als?’ Woodford’s Equity Income fund is very domestically focused, reflecting his bullish views about the economy. Firms who make most of their money in the UK have been hurt by the pound’s slide against the dollar, although big firms who have earnings abroad have done well. Woodford’s fund contains both types. But while Woodford is upbeat about the economy, others are not. As a result, the FTSE 100 has lagged behind rivals since the Brexit vote.

Since the vote, for example, the US’s S&P 500 has grown by 35.6pc while the FTSE 100 has grown by just 21pc.

Jason Hollands, of broker Bestinvest, says: ‘He believes the economy is in a much better shape than a lot of people say. But if he’s right, he will go from zero to hero very quickly.’

So should you stick with Woodford? The man himself is unwavering in his belief he is right.

Some experts, like Yearsley, have stopped putting new money with Woodford. But if you are already invested, Hollands believes you should ride out the storm for a little while longer.

‘If you own the fund and you agree with Neil’s view that the UK is in a better shape than people are saying then you would probably persevere for now,’ he said. ‘But he does need to turn the corner quite quickly.’