Should you buy Neil Woodford's new high income fund for your retirement?
When renowned fund manager Neil Woodford left Invesco Perpetual after a quarter of a century, he launched the CF Woodford Equity Income Fund in June 2014, followed by the Woodford Patient Capital Trust in April 2015. He's now set to launch a third (and final) fund he envisages managing: the CF Woodford Income Focus Fund.
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What's the difference?
Woodford's Patient Capital trust is focused on growth and aims to deliver strong capital gains over the long term. The Equity Income fund is a growth-and-income vehicle, where the objective is a strong total return from a mix of capital gains and dividend growth. The new Income Focus fund is, as its name suggests, targeting a higher dividend yield. Woodford expects the price of the higher yield to be a "slightly lower level" of income growth than that of the Equity Income fund.
How much income?
The Income Focus fund will aim to deliver a 5p dividend per share on the launch price of 100p (so a 5% yield), with future income growth of "low-to-mid single digits". This implies a rising payout that at least keeps pace with inflation, and therefore maintains -- or even modestly increases -- the real spending power of your dividend over time. If Woodford delivers this, capital should follow a similar trajectory to income, so that the real value of your capital pot is also maintained or modestly improved.
Why now?
Woodford believes there's a "particularly attractive opportunity" at the moment for an equity-focused income fund, due to the level of income available from equities compared with the slim pickings on offer from other asset classes. He's been "tracking a model portfolio" for some months and is confident the fund can deliver on its aims.
What will the portfolio look like?
On the face of it, generating a 5% yield when you're bearish on some of the highest yielding sectors in the market seems like a tall order. I think it's safe to assume that the likes of Shell and BP and Lloyds and HSBC aren't going to make a sudden appearance when the Income Focus fund's holdings are unveiled. Rather, we can expect to see existing Woodford high-yield favourites, such as AstraZeneca, GlaxoSmithKline, Imperial Brands, British American Tobacco, Legal & General and Provident Financial, featuring prominently.
Woodford has said that his new fund will be "more concentrated" than his other funds. He won't be including small unquoted companies, which figure in both the Equity Income fund and Patient Capital trust. And, while the Income Focus fund will be unconstrained geographically, if he remains true to past form, as I think is likely, international equities will feature only sparingly.
Who's it for?
The new fund has clear attractions for investors whose main priority is a high income that hopefully grows a little each year. As such, it could be an ideal fund for many people in retirement, although I certainly wouldn't put my entire pot in any single fund. Having said that, given Woodford's 30-year history of outstanding investing (including running a similar high income fund when at Invesco), I'd be happy to make this fund a core holding without waiting for it to build a track record.
When does it launch?
The Income Focus fund will be available for investment from 20 March, with the launch period closing at midday on 12 April.
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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, BP, HSBC Holdings, Imperial Brands, and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
