After 3 decades of success, is Neil Woodford losing his touch?

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Questions and answers

Neil Woodford is one of the most recognisable names in the UK fund management industry, and it's easy to see why. If you had put £1,000 into the Invesco Perpetual High Income fund when he took the helm between 1988 and 2014, it would have grown to £25,349, giving a compound annual return of 13.2%.

However, while Woodford's historic returns are some of the best around, recently his performance has started to slip.

According to FE Trustnet, a lack of performance in recent years has pulled Woodford's long-term total return back to earth. His annualised return over the past 17 years has dropped to 8.5%. What's more, 2016 was one of worst years on record for him as his £9.6bn Woodford Equity Income fund failed to outperform the FTSE All-Share by a staggering 13.6% throughout the year.

And 2017 looks as if it's going to be yet another poor year for the fund manager.

Struggling to maintain performance

2017 has got off to a bad start for many reasons. For a start, his long-awaited second income fund, which launched earlier this month only attracted £500m in cash from investors. This total, while impressive, is around one-third of the funding of his previous offering, suggesting investors have reached 'Woodford saturation'.

Only a day after the news that the new fund had struggled to attract interest from investors hit the headlines, the star fund manager announced that he was seeking shareholder approval to adjust the investment rules for The Woodford Patient Capital Trust, which invests mainly in early-stage UK companies. Like his other fund, Patient Capital underperformed its benchmark during 2016, delivering a net asset value loss of 4.2% for the year against the FTSE All-Share return of 16.8%. Woodford is seeking investor approval to change the fund's investment strategy to allow it to hold more investments outside the UK, increase borrowing and invest as much as 80% of the portfolio in unlisted companies, up from the current 60% restriction.

Unquoted issues

Woodford may believe in his ability to pick unquoted companies, but his record for this strategy is seemingly getting worse every week.

Last week Northwest Biotherapeutics, a private corporation in which Woodford's fund has invested £140m, warned that it might not be able to continue to function without a further cash infusion and is being investigated by regulators. This disaster follows the announcement that Circassia, another early-stager in which Woodford has invested, halted investment in its allergy programme after a second failed clinical trial.

As well as these disasters, shares in one of his largest holdings, Allied Minds,plunged earlier this month when the company warned that it was taking a $147m charge as it exited some start-up businesses.

Unforgivable

This torrent of bad news has cast a shadow over Woodford's reputation, and while it is natural for fund managers to have good and bad years, underperforming during a strong bull market is almost unforgivable.

One has to wonder if he cannot match the market during a bull market, what happens when the market reverses course?

In other words, even though Woodford has a stellar investment record, recent performance suggests he may be losing his edge and with so many other opportunities out there, hunting for other fund managers to look after your wealth may not be the worst idea.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.