Funds to try when you break free from Woodford

As investors finally get some of their cash back, Wealth asks the experts where to turn next

FOR investors who entrusted a big slice of their savings to brand Woodford, only to be horribly let down by ‘star’ manager Neil Woodford, their financial nightmare is drawing to a close. Release from Cell Block Woodford is on the horizon although the anger of many investors remains red hot. Indeed, some believe prison would be a rather fitting place for Mr Woodford to reside for a while, given the damage he has done to their finances – while simultaneously inflating his own considerable wealth at their expense with grotesque multi-million pound dividend payments founded on the fees he took from funds that he ran into the ground.

Yes, there is disillusionment all round – and not just with a greedy and out-of-his-depth Woodford. Investors are unhappy that eight months on from the start of the end for brand Woodford – with the suspension of flagship fund Equity Income – the regulator has so far taken no action against those who failed to protect the financial interests of investors.

So, no fining of the companies that continued to recommend Woodford’s Equity Income fund right up until its suspension in June last year, even though they were aware of its toxicity as a result of an increasing exposure to risky unquoted companies and small illiquid stocks. No one punted it more than Hargreaves Lansdown.

And no punishment for those who were paid a tidy sum to safeguard the interests of fund investors, and failed to do so. Step forward Link, the overseer of Equity Income.

And, quite scandalously, no reprimand, fine or banning order for Mr Woodford who until coronavirus came along was happily travelling the length and breadth of China in a quest to find backers for potential investments in early-stage Chinese companies. The sheer chutzpah of the man – I’d back Fidelity’s Dale Nicholls every time over Woodford to dig out gems from among China’s unquoted business community (see opposite). Woodford is history. Finito.

Maybe, such procrastination on behalf of the regulator is because it is as guilty as anyone in allowing the Woodford debacle to get to where it is to today. It has simply sat on its collective hands and outrageously allowed investors to take the financial hit at every twist or turn – whether as a result of Woodford refusing to waive his fees on Woodford Equity Income during the fund’s suspension (a move that sucked nearly £9million of value out of investors’ holdings and into Woodford’s coffers) or by allowing Link to break up Equity Income when it might have been more prudent to hand over the fund’s assets to another investment company to manage.

YET we are where we are and only time will tell whether justice will prevail (sadly, I doubt it) and the villains of the Woodford piece properly held to account for their actions. Today, what matters is that some 300,000 investors who had money trapped in investment fund Woodford Equity Income should have now received a chunk of it back – a result of £2million of the fund’s assets (easily tradable shares) sold off by investment manager BlackRock brought in by Link late last year to dismantle the fund.

It means investor payments of between £0.46 and £0.59 per Equity Income share, with the exact amount dependent upon what specific share class investors held. This contrasts with the £1 per share price at the fund’s launch in June 2014 and the £1.40(ish) price that the shares rose to in the middle of

before things started to go horribly wrong.

So, for someone who invested £5,000 at launch, they should have received a minimum ‘pay-out’ of around £2,300. For those who invested the same amount when the fund hit its share price high in June 2017, they would have received nearer £1,650. For the record, the wind-up costs involved in getting this money back into the hands of investors rack up to £10million – costs (you guessed it) borne by investors.

There may be a further payment down the line as the fund’s remaining illiquid assets – currently managed by investment house PJT Park Hill – are sold off, although this is likely to be a tiny fraction of what investors have just received. This is because the assets will probably have to be sold off at rock bottom prices. Maybe another 10p per share – but not much more.

‘While it will be a relief for Woodford investors to eventually get of their money back, I imagine finally feeling the loss in hard cash will do little to quell the anger and betrayal many are feeling,’ Justin Modray, of Candid Finance, told Wealth last week.

Spot on. Time for the regulator to step up to the mark.

Although, understandably, not everyone will want to reinvest the money they have got back from their holding in Woodford Equity Income, most should if they want to rebuild their long-term wealth.

Patrick Connolly, a chartered financial planner with Chase de Vere, says: ‘Even if people have had a bad experience with Woodford, this shouldn’t put them off investing in the future. There is a danger that some people will become disillusioned with investments and instead keep their money in cash where they are unlikely to achieve competitive long-term returns.’

It’s a sentiment shared by Moira O’Neill, head of personal finance at wealth manager Interactive Inves2017 tor. She says: ‘While once bitten twice shy may apply, we all need to save for our financial futures. With cash returns mostly eroded by inflation, the stock market is still the place for long-term growth.’

For investors looking for a home for the proceeds from the Woodford wreckage, Wealth asked five of the country’s top financial experts to give their investment fund or investment trust recommendations:

MOIRA O’NEILL INTERACTIVE INVESTOR

‘INVESTORS stung by Woodford may well be looking for a conservatively managed UK equity income fund with a nod to capital preservation as well as capital appreciation.

‘In this category, I like City of London Investment Trust that has been able to increase its dividend each year for more than 50 years. The manager, Job Curtis, has been running the trust for a quarter of a censome tury too. Investors may also like to think about global diversification. Here, I like investment fund Fidelity Global Dividend that has a capital preservation approach. It has tended to perform strongly in challenging markets, while keeping up with the pack in rising markets.

‘On a more general level, a good way of keeping on top of your investments is to create a spreadsheet and traffic light your investments – green to highlight things are going well, amber to show you need to review it more often and red for when the investment has run out of chances and it’s time to sell and find a better option.’

PATRICK CONNOLLY CHASE DE VERE

‘A GOOD choice if investors are still happy to invest in an actively managed fund is Royal London UK Equity Income. This is a boring, core holding UK equity income fund and so is ideal for those who are looking for long-term consistent performance and income.

‘The fund invests predominantly in large and mid-cap stocks and looks for companies with strong business models that generate enough cash to support growing dividends. If investors have lost faith in active fund managers as a result of Mr Woodford then they could consider a passive fund such

as L&G UK Index Trust that tracks the performance of the FTSE AllShare Index – or if they want income, Vanguard FTSE UK Equity Income Index. These funds benefit from low charges and investors can be confident that the managers won’t be taking home annual multimillion pound pay packets.’

ADRIAN LOWCOCK WILLIS OWEN

‘RICHARD Colwell, manager of Threadneedle UK Equity Income, is one of the best-known specialists in the UK equity income sector. The fund is a mainstream equity income fund run by a very experienced manager that would fit into most income portfolios. It aims to pay a high and growing income, as well as deliver long-term investment growth. Unlike some UK equity income fund managers, Colwell doesn’t invest outside the UK.

‘Franklin UK Equity Income is a core fund for investors looking for steady long-term income while Trojan Income, managed by Francis Brooke, offers the potential for solid income and capital growth over the long run. The focus on companies that tend to be more resilient means the fund’s price could fall less than others when stock markets correct. However, it might not go up as quickly when markets rise.’

JASON HOLLANDS TILNEY

‘FUNDS to consider include Fidelity Special Situations and sister investment trust Fidelity Special Values, JO Hambro UK Dynamic and Jupiter Income. A lot of investors have shunned the UK or reduced their exposure over the last few years due to political and economic uncertainties but the clouds have lifted since the Election and big public spending commitments should boost the economy. UK shares are also a lot cheaper than most other major markets.’

BRIAN DENNEHY FUNDEXPERT

‘THE beauty of a successful UK equity income fund is that it meets the growing income objective for income investors, and, with income reinvested, also meets the total return objective of the growth investor. But few funds achieve both objectives.

‘My personal favourite is JO Hambro UK Equity Income. The fund’s objective is to achieve longterm capital appreciation and generate an above average dividend yield, which will grow over time. It has certainly done that.

‘It has a great track record of growing income payouts year on year. Over the last ten calendar years the fund has grown the income it pays nine times out of ten.

On a total return basis – capital growth plus dividends – the fund has returned 164 per cent over the last ten years versus 122 per cent for the FTSE All-Share Index.

‘I also have to select Trojan Income. It has grown its income in each of the last ten years and combined this with an outstanding total return over the same period. So JO Hambro UK Equity Income and Trojan Income are my recommendations for Woodford escapees.’ To invest use these London Stock Exchange identification numbers: City of London: 0199049

Fidelity Special Values: BWXC7Y9 jeff.prestridge@mailonsunday. co.uk