Why I’m not backing Woodford Equity Income
Unless you’ve been living in a cave on Mars for the past few months, you are probably aware that investing legend Neil Woodford is due to launch his new fund on Monday.
CF Woodford Equity Income opens to new investors on 2nd June and will be initially offered at £1 a share, through until 19th June.
Of course this is not like an initial public offering (IPO) where investors need to rush to invest; as an open-ended fund, the price of units will be driven by the value of underlying assets, rather than investor demand.
With plenty of personal finance journalists fawning over the ex-Invesco Perpetual star fund manager, it is important for investors to take a step back and carefully consider any decision to invest.
I for one will not be backing the new Woodford Equity Income fund at its launch, at least until it has established a track record on its own right.
Why? There are plenty of reasons.
I’ve no doubt this is a fund which is going to grow too large. Woodford has already secured institutional mandates reported at over £4bn, from the likes of St James’s Place and Hargreaves Lansdown.
With some corners of the financial press keen to promote Woodford at every possible opportunity, no doubt hoards of retail investors will also be keen to hand over their cash from next week, swelling the coffers quickly.
Remember that Woodford will then need to invest this money in the UK stockmarket – a stockmarket which is currently near its record high levels.
We were always reluctant to recommend his Invesco Perpetual funds in their final couple of years, due to capacity concerns and the risk that moving positions could influence markets.
There is also the matter of cost.
CF Woodford Equity Income is priced at 0.75% per annum, which is pretty much standard for the clean price of a UK Equity Income fund. You can get the fund slightly cheaper with discount brokers who have negotiated a slightly lower price, but of course you would need to consider their platform costs which can make the overall cost of investing higher despite the discount.
With Woodford taking what some might call a boring approach to portfolio turnover, investors could be better off with a lower cost tracker fund than paying active fees for Woodford Equity Income.
It will be very interesting to compare the performance of CF Woodford Equity Income and, say, Fidelity Index UK Fund, with its ongoing charge of 0.07%, in ten years time.
Resources are another important consideration. Woodford has moved from the global company Invesco Perpetual to what is effectively a start-up.
Regardless of having built a team of experienced people who have worked together in the past, it takes time to gel as a new team and discover what works.
Given the size of the mandates they have already secured, Woodford Investment Management will no doubt be able to secure resources comparable to Invesco Perpetual in time, but a new business of any scale is still a new business.
If you are desperate to invest in CF Woodford Equity Income from the start, there is probably no harm with allocating a modest amount of your investment portfolio to the fund.
But a good rule of investing is to watch out for hype and actively avoid it.
With Woodford, all we have seen now for several months is hype. This is a well-oiled super-slick marketing machine at its very best, securing glowing press coverage and convincing several discount brokers to pump out promotional material on its behalf.
Investing should not be about hype; it should be all about what is right to meet your investment goals and objectives. Glitzy fund launches and personal suitability feel miles apart from each other, in the opinion of this adviser anyway.