Fund manager Neil Woodford has an excellent reputation, and a phenomenal track record of generating wealth for his investors. Indeed, if you had invested 10,000 with Woodford when he started out in 1989, your portfolio would now be worth over 300,000, twice the amount had the capital been invested in the FTSE All-Share index. So its no surprise that Woodfords Equity Income fund consistently ranks among the most popular investment funds in the UK.
However if youve been thinking about investing hard-earned capital in Woodfords fund, theres a few things you should understand first.
Equity income
Equity income funds can providean excellent foundation to many investment portfolios, as theyaim to generate a rising income along with some capital growth over the long term. The fund manager will generally look to invest in mature, well-established businesses that pay regular dividends to shareholders. While the investment universe is diverse, its common to see blue-chip companies inthe financials, healthcare, oil & gas, and consumer goods sectors making up a significant proportion of fund holdings.
A glance across the equity income fund sector reveals that many funds look quite similar, sharing key holdings.Thats why I was surprised recently when I examined NeilWoodfords portfolio holdings. Its fair to say that Woodfords Equity Income fund isnt your average equity income fund.
Actively managed
The first thing investors should understand about Woodfords fund isthat itsvery much actively managed.This means the fund manager isnt simply aiming to replicate the returns of the market, but instead add value by picking his own stocks. Woodford isnt afraid to make bold investment decisions, and as a result, the fund may not behave like the market at times.
Under the bonnet
The next thing to be aware of is the composition of the portfolio.Woodford is transparent about his portfolio holdings and the full list of holdings as of 31 December 2016 can be found here. Id recommend taking a look, because when I peered under the bonnet recently, I was quite surprised by some of the holdings.
As can be seen below, the top 10 holdings are fairly standard for an equity income fund with a focus on FTSE 100 dividend champions,although there are a few unorthodox names in Prothena, Allied Minds, andTheravance Biopharma.
Woodford Holdings 1-10
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Source: Woodfordfunds.com
However, looking beyond the top 10 holdings, Woodford really starts to shake things up, withless focus on well-known mainstream companies.
Woodford Holdings 11-20
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Source: Woodfordfunds.com
And by the time we get to the bottom of the portfolio, many of the companies he has invested in are unheard of and in fact, unquoted.
Woodford Holdings 110-119
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Source: Woodfordfunds.com
Healthcare bias
Its also worth noting the strong bias towards the healthcare sector and Woodford has made it clear that hes bullish on the long-term prospects of this sector. However, while hes got large positions in the big boys of the pharma world, Im quite surprised by just how many smaller, unproven healthcare holdings are in the portfolio, many of which arent even listed.
So what does this all mean? Has Woodford lost his focus? Do his poor performance figures over the last 12 months mean its time to ditch the fund manager? In my opinion, the answer to these questions is no, given hislong-term track record. Having said that, I believe its important that investors understand exactly what theyre investing in before they invest in Woodfords Equity Income fund.
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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.