2017: Woodford's annus horribilis
7 December 2017 - It hasn't been a good year for Neil Woodford. He has faced setbacks from disappointing stocks such as Allied Minds, AA , AstraZeneca, Babcock and Purplebricks and, in the summer, doorstep lender Provident Financial fell by 70% on the news that its chief executive had resigned.
Neil has been very open about his funds' holdings since he set up his own asset management company in 2014. However, the complete transparency of his holdings – the entire portfolio is listed publicly every month for all to see – and his fame, mean that his struggles, perhaps more than any other fund manager, are documented in detail too.
Having been top in it's sector over three years to June 2014, Woodford Equity Income has had a very difficult six months, losing 9.15%* on the back of these disappointments. This compares to an average fall of 0.67%* for the IA Equity Income Sector.
Provident Financial, having seen a slight recovery, has seen its stock price fall again in recent weeks and Prothena, a biotech stock and his fourth largest holding, has fallen 30% in the past month as it has been targeted by short sellers.
So has Neil lost his touch? In our view no. The fund still has above-average performance since launch, despite the recent losses, and he has been through periods of substantial under- performance in the past – only to bounce back.
His newer fund, Woodford Income Focus, which has far fewer small positions in biotech companies, has performed better.
And ten years on from the global financial crisis, he is concerned that stock markets are in bubble territory – so his funds are positioned against the herd.
Neil argues that investors have forgotten about risk. Bitcoin going through $14,000, European high yield bonds yielding less than US Treasuries, huge inflows into ETFs and historic low levels of volatility are all indicators of a bubble about to burst in his view.
He argues there is always a subset of the market that falls out of favour, as investors clamour for the fashionable stocks of the day. In the dotcom bubble, when he refused to buy tech companies, Woodford says it was the old economy stocks that did well in the end. Today, it is domestically-focused stocks, which have become profoundly unloved and undervalued. Both of his funds are positioned in these unloved companies.
Having avoided tech companies in the late 1990s and banks in 2008, it is a brave man who bets against Neil's big calls. The stock market may continue to rise in the short term but, nearly nine years into a bull market, his words do resonate with us here at Chelsea.
Whether or not 2018 will be the year the bubble bursts remains to be seen. But hopefully Neil can turn things around and it will be an annus mirabilis once again.
*Source: FE Analytics, total returns in sterling over the six months to 7 December 2017
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius's and Neil's views are their own and do not constitute financial advice.