The demise of Woodford Investment Management was one the most surprising and saddest stories of 2019. Neil Woodford and the funds he managed were the bedrock of many investor portfolios for more than three decades. But a prolonged period of underperformance in recent years led to significant outflows and, subsequently, trouble for the fund manager when it came to trading an increasingly large proportion of illiquid stocks in the LF Woodford Equity Income portfolio. The result was a suspension of the fund in June last year and its closure in October.
After waiting more than six months to see how much of their investment they would get back, investors finally saw the first tranche of their money returned at the end of January 2020, with Chelsea’s clients receiving between 48.4p and 58.6p per share, depending on which share class they held. The question now is what do investors do with that money?
With six weeks until the ISA deadline for 2020, many investors are now searching for an alternative to make up for that lost income stream. Luckily, there are plenty of alternative active managers out there who can offer a solution. Here are a few options to consider:
This fund is an option for those looking for a good old-fashioned and steady UK equity income fund in their portfolio. Though investing in companies with above average yields, Rathbone Income manager Carl Stick aims to deliver a rising income, with capital upside over time. Carl’s investment process combines macroeconomic considerations with bottom-up stock picking to build a portfolio of 40-50 stocks. Seeking companies with quality earnings at the right price is the core emphasis of Carl’s fund. The fund has a consistent track record, returning 29.1%* in the past five years, with a yield of 4.22%**.
Manager Henry Dixon has an unconstrained mandate, allowing him to invest across companies of all different sizes. His process is clear and repeatable, targeting stocks with good cash generation. Initial stock screens are combined with bespoke in-house models to highlight stocks for further research. Henry can also invest in a company’s bond if he believes they offer better value than its shares. The fund is up 53.5%* in the past five years and has a yield of 5.23%**.
This is a solid core global income fund, which aims to pay a regular and growing dividend, whilst preserving capital. Manager Dan Roberts invests in predictable resilient businesses, which can continue to generate strong cash flows, even when times get tough. Dan mostly invests in larger companies although his overall portfolio looks very different from the benchmark, and he may avoid some countries or sectors altogether. The fund typically outperforms a falling market but can struggle when markets rise strongly. The fund is 69.9%* in the past five years and has a yield of 2.26%**.
This strategic bond fund gives the managers considerable freedom to invest in any type of bond, but their emphasis on providing a high income and security of capital mean the fund will often have a bias towards higher quality high-yield bonds, although security selection is driven by bottom-up analysis. The fund can invest up to 20% of its assets in equities. Invesco is well known for the strength of its fixed-income resource and this is the company's flagship offering. Income is paid monthly. The fund yields an attractive 4.59%** and has returned 18.9%* to investors in the past five years.
Andreas Zoellinger manages this core European equity income fund, which invests predominantly in large-cap stocks. Andreas looks for undervalued European companies (or companies with a predominant part of their business based on the Continent) that offer reliable, sustainable dividends; potential dividend growth; and protection against inflation, with a lower level of risk. The fund is up 57.3%* in the past five and has a yield of 3.56%**.
*Source: FE Analytics, total returns in sterling, 20 February 2015 to 21 February 2020
**Source: FE Analytics at 24 February 2020