Neil Woodford departure – Should I stay or should I go? Jeff Prestridge on the investor’s dilemma

23rd October 2013

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Apologies to The Clash but it’s  a question many investors – and their financial advisers – will be mulling over in the coming weeks as they absorb the news that one of the country’s top fund managers is moving on to pastures new.

I’m of course talking about Neil Woodford of fund giant Invesco Perpetual – Mr Equity Income, Mr Income and manager of two of the country’s biggest (and most successful of all time) investment funds:  Invesco Perpetual Income and Invesco Perpetual High Income.

After a quarter of century’s loyal service to the Henley-on-Thames based investment house, Woodford is off to do his own thing. He’s going to set up his own fund management business. Start date is April next year and it’s bound to be a success given that Woodford has said he will use the same investment disciplines he has employed to great effect at Invesco to generate stellar returns for fund investors.

Although investors in Woodford’s funds will be disappointed to see him go, no one should begrudge him doing his own thing. He’s given Invesco – and fund investors – some of his best years.

I do not want to be over-dramatic but without him and his formidable track record, Invesco would probably be another me-too retail investment fund provider in an industry where me-toos are two a penny.

More importantly, without his Midas touch as a stock picker and his astute reading of the stock market, a lot of investors would now be considerably poorer. Woodford is among an elite (and very exclusive) group of managers who, through consistent outperformance of markets, has managed to give active management a good name. He’s up there with the Anthony Boltons and Hugh Youngs of this world.

So, should you stay or should you go?

Well, a number of advisers have been quick off the mark to say that without Woodford the Invesco funds he runs (besides Income and High Income he runs a slice of Monthly Income and Distribution) will never be the same again. As a result they are recommending that investors look for alternatives – everything from Artemis Income (managed by Adrian Frost, another manager with an exemplary 25 year track record) through to JOHCM UK Equity Income, Franklin UK Mid Cap and M&G Recovery (managed by the splendid Tom Dobell). All sensible choices in anyone’s investment portfolio.

Other experts advise a less dramatic reaction. They believe investors should put no new money into Woodford’s funds until the situation at Invesco becomes a little clearer.

I’m more comfortable with not buying any more of Woodford than selling up and moving your money elsewhere. But I’m not convinced either approach represents the best strategy for investors.

For a start, Woodford is not going for another six months, so there is no need for investors to panic.

Then, there’s the calibre of Woodford’s replacement – Mark Barnett – to consider. Unbeknown to many investors and advisers, Barnett has done a super job at the helm of Invesco Perpetual Strategic Income. In fact, over the past five years, he’s actually outperformed the great man himself.  So maybe it’s absolutely the right time for him to come out from under Woodford’s shadow, step up to the mark and show that he has the talent to deliver outperformance on a wider scale.

And while Woodford represents  a big loss for Invesco and his army of followers, let’s not forget that all the planks that made Woodford so successful still remain firmly in place – namely a long standing UK equity team working together, exchanging ideas and attending company meetings together supported by a bank of fine analysts.

So, by all means stop pouring monthly Isa contributions into Invesco Perpetual Income and High Income if they’re the only funds you are currently investing in. And look for alternatives if your Invesco income funds represent a disproportionate slice of your overall portfolio – diversification of fund managers, fund groups and asset classes always makes great sense.

But don’t jump ship. Good funds don’t become bad ones overnight.

‘Should I stay or should I go?’

Stay – and buy into Woodford’s new funds when they  become available next Spring.

 

2 thoughts on “Neil Woodford departure – Should I stay or should I go? Jeff Prestridge on the investor’s dilemma”

  1. Eric says:

    Has Neil Woodford actually said he’s off to set up his own fund management business?

    1. John Lappin says:

      Yes. There isn’t much more detail however.

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