“Should I add £3,000 to Neil Woodford’s equity income fund?”

19 September 2017
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The Investment Doctor helps a reader interested in a Woodford Fund.

I’ve invested £3,000 in Neil Woodford’s CF Woodford Equity Income Fund*. I now have a further £3,000 to invest. Should I buy more of the same fund or add a different fund? If picking a new fund, which one?

Initial diagnosis

A lot depends on your financial objectives, such as whether you want a regular income or capital growth, according to Gavin Haynes, managing director of Whitechurch Financial Consultants.

“You must invest sensibly according to your needs and how much risk you’re prepared to take with your investments,” he says.

Investment portfolios should be shaped by what you hope to achieve.

“Consider how much of your portfolio you’re happy to hold in the stock market because Neil Woodford’s fund is 100% invested in equities,” he adds.

Your must consider your age, attitude to risk, and other savings, points out Adrian Lowcock, investment director at Architas.

“You need your objectives clearly laid out so you know what you are looking for and when you want to achieve these goals,” he says. “For example, how comfortable would you be with the investment falling 10%, 20%, or even 30% in any year?”

Treatment plan

Of course, such financial planning questions shouldn’t take anything away from Neil Woodford’s fund, which is hugely popular – and for good reason. The long term track record of Neil Woodford, who formerly ran two very successful funds at Invesco Perpetual, is excellent. 

It provides investors with exposure to a portfolio of primarily defensive UK blue chip dividend stocks, points out Mr Haynes, who rates it highly.

“Neil Woodford has an exceptional track record and clearly defined investment approach,” he says.

“Since its launch the fund has significantly outperformed the UK stock market and its peer group.”

However, Neil Woodford has had to apologise recently for poor performance in 2016, followed by a difficult 2017 so far. He's vowed to make back the missed performance though. 

Can he do it? Several fund mangers with equivalent track records have had to apologise in the past - and some managed to make the money back too.

Whether you should buy more depends if this is all the money you have invested, points out Darius McDermott, managing director of Chelsea Financial Services.

“If it’s part of a wider portfolio, then there’s very little reason not to add to the fund if you’re comfortable and happy with the investment,” he says. “However, if it’s all your money, then you may like to consider diversifying so you’re not completely reliant on one fund manager.”

The fact is that investing more in this fund will increase the manager and asset risk.

“You are reliant on Neil [Woodford] and the asset class continuing to perform well,” he says. “If either one comes off the boil, it could impact your returns. Diversification will help offset these risks.”

There is also the currency factor.

“Some larger UK companies – in which Mr Woodford invests a significant amount – could see their outlook worsen if the pound has a rebound,” he says. “This could impact on their ability to pay dividends going forward.”

Mr McDermott suggests diversifying and using the fresh money to put into a global equity income fund. “I like Artemis Global Income* and Fidelity Global Dividend,” he adds.

Other treatments

There are pros and cons with diversification – and one of the main benefits is less volatility, points out Mr Lowcock.

“However, not all assets perform as well at the same time, so when one is doing well another might lag,” he says. ‘The more funds you have, the more monitoring needs to be done.”

If you’re warming to the idea of diversification, he also highlights the Fidelity Global Dividend fund. “This would give access to the global equity markets and suit either a long-term investor as dividends are reinvested, as well as someone looking for income,” he says.

Kames Strategic Bond is another option to give access to bonds, a different asset class. “It would provide diversification away from equities, but access to a bond manager with the flexibility needed in that sector now,” he adds. “You could reasonably split the £3,000 equally across both funds.”

* Denotes funds within Moneywise First 50 Funds for beginners.

For more fund ideas, visit www.moneywise.co.uk/first-50-funds.

Rob Griffin writes for The Independent, Sunday Telegraph and Daily Express.

Read more from Rob Griffin.

In reply to by anonymous_stub (not verified)

Reading between the lines it seems to me that Mr Neil Woodford has been guilty of of breaking one of the basic investment rules, that is of having a stop loss in place, on at least one if not two or more occasions. As a supporter of Provident Financial Group Mr Woodford has seen the price plummet from a high of £34 to less then £5 and then bounce to nearly £8 and the profits he made with Purple Bricks have also been recently compromised. His actions are not an endorsement for investment. As an investor in Invesco Perpetual High Income fund which has suffered a similar fate, I count myself fortunate that I dis-invested prior to the fund incurring similar substantial losses. I would also question his liking for Lloyds Banking Group, on the downside it is a mishmash old UK banks and building socities, with a dilapidated and inefficient back office IT infrastructure that may suffer post Brexit and the only upside is the possibility of higher interest rates, that must now be in doubt given the recent rally in the value of the pound.

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