Neil Woodford's new income fund opens its doors
Neil Woodford’s second income fund has opened its doors to investment.
Called CF Woodford Income Focus, the fund will set out to deliver a high starter yield compared to rival UK income funds, aiming to deliver an income of 5p per share for every £1 invested at the end of its first full calendar year in 2018. This will equate to a yield of 5 per cent. From then onwards Woodford will aim to deliver modest sustainable growth in per share income.
Most other UK equity income funds have yields within a range of 3.5 per cent to 4.5 per cent, while Woodford’s own CF Woodford Equity Income fund currently yields 3.7 per cent.
The higher starting yield will no doubt attract the interest of the growing army of savers who are choosing to live off their investments at retirement and in effect pay themselves an income through the returns generated by their pension portfolio.
But as Money Observer has previously noted, a high yield should be treated with a healthy dose of scepticism. We’ve previously come up with four warnings signs that point to a dividend in danger.
Speaking at a press briefing last month, Woodford said his new fund will have no geographic constraints. In addition there will be no exposure to unlisted stocks, which feature prominently in his two other funds, Woodford Equity Income and Woodford Patient Capital. The new fund will sit in the Investment Association’s specialist sector.
WOODFORD’S TRACK RECORD
The fund will be popular – Woodford’s track record speaks for itself. Number-crunching by Hargreaves Lansdown worked out that across the manager’s 25-year plus career, he has produced an annualised total return of 12.7 per cent, compared to a 9 per cent return from the wider stock market (FTSE All Share). Since 1988 he has turned a £1,000 investment into nearly £30,000 after charges.
As well as making some sound individual stock calls over the years Woodford has also added value by avoiding certain areas of the market, most famously refusing to buy technology in the late 1990s, before the bubble spectacularly popped. He also avoided banking stocks in the run-up to the 2007/09 global financial crisis.
‘Protecting investors in times of market turmoil has also been a key plank of Neil Woodford’s long term outperformance,’ points out Laith Khalaf, a senior analyst at Hargreaves Lansdown.
He adds: ‘Woodford’s career track record demonstrates the significant value that can be added by a skilful active manager, and investors who have stuck with him for the long term have been very handsomely rewarded indeed.
Since launch, in June 2014, Woodford Equity Income has returned 35 per cent, according to FE Trustnet. The average fund in the Investment Association UK equity income sector is up 20 per cent over the same timeframe.
His other fund - Woodford Patient Capital - has struggled to find its feet, however. The trust has posted a share price loss of 5 per cent since making its stock market debut in April 2015.