The Hargreaves Lansdown team met with Neil Woodford recently to talk performance and plans. Filling us in on the gossip, with an update to his ‘Should I sell my Woodford fund?‘ article, is Hargreaves’ head of research, Mark Dampier.
“It’s no secret that we’ve been long-term supporters of Woodford. But his funds have recently performed poorly. It’s been an uncomfortable time to hold the fund and our own conviction has been tested.”
This is the official line from Hargreaves Lansdown, but it comes with a series of caveats. Mainly that poor performance now doesn’t mean poor performance in the future. And seeing as Woodford’s approach is to identify a company or sector’s opportunities in years to come – opportunities which are not yet recognised by the market or share values – slow periods are to be expected. It’s like an athlete crouching on her marks before springing into the race.
In short: Brexit. Whereas many fund managers and investors have largely steered clear of the UK market because of concerns over the impact of the Big B, Woodford takes a different view which isn’t paying off yet.
“He thinks the prospects for the UK economy are far better than most believe. He told us he’s never seen such a big difference in value between stocks he considers cheap and the ones he thinks are expensive. As such he’s taken big sector positions to benefit from this view, with large investments in financial and industrial companies and the UK housebuilding sector.”
Although there are never any guarantees, it seems the success of the Woodford Equity Income Fund is tied to a soft Brexit or no Brexit at all. If we get a hard Brexit, with continued uncertainty about the UK economy and our relationship with the EU, it could spell further trouble.
Woodford is no stranger to investing against the herd. Time and again, people in the industry have questioned his judgement – part and parcel of being a contrarian investor – but time and again he has proved them wrong.
He shunned tech stocks before the tech crash of the 2000s. And he shunned financial stocks before the crisis in 2008. Both of which led to uncomfortable periods of underperformance as others rode the wave, but ultimately paid off.
Of course, that doesn’t mean it’ll be the same story this time. Which is why it’s always so important to spread your investments among managers who invest differently.
Hargreaves Lansdown is in it for the long run, Mark tells us. As long as they still have conviction in a manager, they’re patient enough to stick with him through a poor period. That’s why you’ll still find the Woodford Equity Income Fund on Hargreaves’ Wealth 50 buy-list, which was completely revamped this week.
“Woodford’s been included on the Wealth 150 list of our favourite funds since we created it in 2003. It comes down to our belief that there’s a greater probability he’ll deliver attractive returns in the years to come than there is he’ll continue to perform poorly.”
Our own Holly Mackay agrees:
“It is very hard to pick with any certainty who the performers of tomorrow will be. It seems premature to write off Woodford. But I have also watched my holdings in this fund slide South and am naturally beginning to think about switching. I’m not. Yet. But it’s not a comfortable or easy call.”
Will you be hanging on for a little longer? Or are you thinking it’s time to sell up? We can’t tell you what’s best for you and your goals, but if it’s the latter, take a look at our 2019 fund recommendations.
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