Woodford Income Focus – Review

Woodford Income Focus is one of three investment products provided by Woodford Investment Management. The company was set up by Neil Woodford in 2014.

Neil Woodford is one of the most famous fund managers the UK has produced. He was even awarded a CBE for services to the economy.

Woodford built his reputation during 26 years at Invesco Perpetual. He beat the market for a quarter of a century!

Woodford is a fundamental investor, who looks for companies that are undervalued. He is often described as a contrarian and somebody who isn’t afraid to make big calls.

He famously refused to invest in technology stocks when they were rocketing during the late 90s and of course was proved right when the bubble burst in 2000.

In fact he might be in a similar situation right now. That is because all his funds have been under performing recently.

Some think he has lost his stock picking ability. Some go so far as to think he never had any! Rather, it was just down to luck and that luck has finally run out!

Others think this is a situation like 2000 where it is only a matter of time before Woodford is proved correct and his funds turn around and start outperforming.

Investors will need to make up their own mind up about this before they invest in one of his funds.

Of the three funds on offer from Woodford Investment Management, Woodford Income Focus is the latest to be added to the range. It was launched in 2017. Here’s what Woodford Investment Management say about it:

• The fund will aim to deliver an income of 5p per share per annum
• No geographical constraints – the fund will benefit from the flexibility to invest overseas when appropriate opportunities present themselves
• Only investing in quoted assets – unlike our other two funds, the new fund will not offer exposure to unquoted securities

Currently, the fund has a dividend yield of 6.02% so if you are after income this fund might be worth considering.

Woodford’s team have gone to a lot of trouble to be extremely transparent in everything they do, whether that be cost structures or the businesses they invest in. In fact, they even post videos of Neil Woodford himself answering difficult questions about his funds underperformance.

Recently he’s been having to answer lots of difficult questions. No surprise, because the Income Focus fund has underperformed quite badly recently. In fact, all his funds have.

Over the last year the fund earned -6.28% compared to over 8% for the FTSE All Share Index.

Personally, I wouldn’t read too much into that, though. All funds and fund managers are going to have a period of underperformance. In fact, there’s a good chance funds that have underperformed will out perform in the future. You can read more about that here.

I’d feel more comfortable investing in a fund that was underperforming, rather than one that was outperforming. When funds underperform you can buy them cheaper, giving you higher returns if and when they turn it around. So all good so far!

But Woodford Income Focus certainly won’t be for everyone. There are a number of potential problems I can see that might put certain investors off.

The first problem is that it is actively managed. In case you haven’t heard, the case for active management gets weaker by the day. You can read more about that here.

The next problem is that it is heavily focused in the UK. In fact 92.13% of the fund is made up of UK companies. That’s great if you are bullish on UK companies, but not so great if you aren’t. It’s great if the UK economy does well, it might not be if it doesn’t.

It is also worth thinking about whether you want to invest in high dividend paying fund. Dividends are taxable. Providing your income doesn’t exceed your personal allowance, or you can place your investments in a tax free wrapper like an ISA, dividends are fine. Otherwise, you may want to avoid them, to avoid paying tax.

Finally, the fund isn’t cheap or straightforward when it comes to pricing.

If you invest directly with Woodford you pay 1% for A class shares.

Alternatively, you can pay 0.65% for Z class, 0.75% for C class, and 1.5% for X class shares. You invest in these shares through financial advisors and fund platforms. The price you pay will depend up on the financial advisor or fund platform in question.

As a result it probably goes without saying that I wouldn’t recommend allocating too much of your portfolio to a fund like this. In fact, I’m pretty sure most investors will be well served without this fund. Simply, investing in a couple of passively managed funds will suffice. A global stock fund together with a government bond fund will provide a strong, simple portfolio for most investors.

That said, for investors who want to add a little more diversification to their portfolio and aren’t afraid of a little extra complexity, there maybe a place for one of Woodford’s other funds in their portfolio.