Neil Woodford’s performance has increasingly been put under the spotlight in recent weeks after a series of his holdings disappointed and were hit with significant share price falls – but FE Trustnet research shows a number of giant funds are also in their sector’s bottom decile over the year to date.
Over the first eight months of the year, the £9.2bn CF Woodford Equity Income fund posted a 0.59 per cent total return – making it the worst performer in the IA UK Equity Income sector. This was something of a turnaround – for the bulk of its history, the fund had been the peer group’s best performer since launch in June 2014.
The lacklustre returns were down to a number of stock-specific issues, with holdings such as Provident Financial, Allied Minds, AstraZeneca and AA all selling off in recent months.
FE Alpha Manager Woodford has been open in discussing his underperformance. In an update to investors earlier this month, he said: “I'm very disappointed with the short-term performance and, indeed, have been criticised for it. And I think I'm right to be criticised. It's been a difficult period. And I'm very sorry for the poor performance that we've delivered really now since 2016.”
Performance of fund vs sector and index in 2017
Source: FE Analytics, as at 31 Aug 2017
However, the manager stood by his investment process and argued that his poor run is down to “the rather odd characteristics of this bull run”.
This has meant that Woodford has been constantly covered by investment media over recent weeks, with almost every negative piece of news about his holdings being jumped on in order to publish stories with the manager’s name in the headline.
On the one hand, this is understandable. Woodford is arguably the most high-profile investor in the UK fund management industry and the size of his funds mean many, many investors have money in his portfolios. However, it’s worth keeping in mind that he is not the only manager running billions of pounds of investor money – and some of the others are also having a relatively tough year.
In this article, we looked at the performance of every fund in the Investment Association universe with assets under management of more than £1bn to see how they were performing in 2017.
There are 477 funds this size but only 377 are in Investment Association peer groups where sector ranking are deemed to be appropriate. Of these, 74 – or 19.6 per cent – are in their respective sector’s fourth quartile (so a little better than the law of averages would suggest) while 36 – or 9.5 per cent – are in the bottom decile year to date.
Looking first at the IA UK All Companies and IA UK Equity Income peer groups, FE Analytics shows that eight funds including CF Woodford Equity Income are bottom decile.
Source: FE Analytics, as at 31 Aug 2017
While CF Woodford Equity is by far the largest fund on that this and has made the lowest return, all of the others are also popular funds with respected managers and good long-term track records.
Schroders has three entrants on the list: Schroder Income and Schroder Recovery are headed up by the FE Alpha Manager duo of Nick Kirrage and Kevin Murphy, while Kirrage and Murphy run Schroder Income Maximiser with Mike Hodgson. All three funds are managed with a value approach, which has underperformed this year.
Invesco Perpetual High Income and Invesco Perpetual Income are run by FE Alpha Manager Mark Barnett, having previously been managed by Woodford. Given their similar approaches, the funds have some holdings in common with CF Woodford Equity Income – including Provident Financial – and have suffered as a result.
FE Alpha Manager Francis Brooke touched on the underperformance of Trojan Income in a recent update, noting that the fund was hit by the 15 per cent fall in AstraZeneca after a failed lung cancer drug trial, the crash after Provident Financial issued another profit warning and a slump in its tobacco holdings after US renewed a commitment to reduce nicotine levels in cigarettes.
A number of giant funds from the international equity sectors also find themselves in the bottom decile over 2017 to the end of August. The table below looks at members of the IA Global, IA Global Emerging Markets, IA Asia Pacific Excluding Japan, IA Europe Excluding UK, IA Japan and IA North America sectors.
The biggest name on the list is Stewart Investors Asia Pacific Leaders, which is run by FE Alpha Manager David Gait and Sashi Reddy. The fund’s 11.53 per cent total return over the eight months in question is around half the gain made by the MSCI AC Asia Pacific ex Japan index and its average IA Asia Pacific Excluding Japan peer; both are up more than 20 per cent.
Newton Asian Income is another prominent member of the sector that has dropped into the bottom decile this year. This is a reversal of its strong performance in 2016, when a 30.71 per cent total return put it in the second decile of the sector.
Source: FE Analytics, as at 31 Aug 2017
The underperformance of the value style in 2017 is again clear with this list. Fidelity American Special Situations, Man GLG Japan Core Alpha and Lazard Emerging Markets are all examples of funds that have built a strong track record using this style but have fallen to the bottom of the rankings this year.
This underperformance follows a strong 2016, when value investing had a brief resurgence following the return of inflationary forces in the global economy and the election of Donald Trump as US president. Man GLG Japan Core Alpha and Lazard Emerging Markets were both in their sector’s top decile last year while Fidelity American Special Situations was in the third.
M&G Global Dividend, which is headed up by Stuart Rhodes with John Weavers and Alex Araujo as deputy managers, also had a top decile 2016 before falling to the bottom 10 per cent of the IA Global sector over this year to the end of August.
This is another fund that was hampered by the Food and Drug Administration’s announcement about nicotine levels in cigarettes. In addition, around half of the portfolio is in cyclical and ‘rapid growth’ stocks – towards the top of its historic range – which could suffer when investment sentiment takes a dip.