Neil Woodford has been one of the UK's most successful investors in recent years. His funds have generally outperformed the market, offering a potent mix of resilience and growth over a sustained period. As such, it is unsurprising that many investors would like to invest in a similar fashion to Neil Woodford. Here are three reasons he has been successful - all of which can be implemented by Foolish investors.
While Neil Woodford's funds contain a wide range of shares, his core holdings tend to be robust, resilient and highly defensive shares. The two sectors which he has generally favoured are tobacco and healthcare. Both of these industries offer growth outlooks which are likely to be relatively resilient even in the face of difficult economic challenges. As such, during periods of time where the wider stock market underperforms, Neil Woodford may be able to generate positive returns.
Furthermore, the healthcare and tobacco sectors offer upbeat long-term growth prospects. In tobacco, the increasing demand for reduced risk products means there could be a new era of higher growth. Similarly, a growing and ageing world population means demand for healthcare could rise. As such, Woodford may be proven right with his big bets on tobacco and healthcare.
As well as backing the right sectors, he also has a long-term outlook. While many fund managers seek to time the market and move between various stocks and sectors at the right time, Neil Woodford tends to stick with companies even when they are underperforming.
Certainly, if their strategy to deliver a turnaround is not sound, he seems unlikely to hold on indefinitely. But if a company's management seems set on improving the financial performance of a business, he has the patience and discipline to hang on.
This does not only apply to lossmaking investments, but also to profitable stocks. One of the biggest challenges facing investors is knowing when to take a profit on a successful investment. In Neil Woodford's case, the answer seems to be 'rarely', since if a company is performing well it may be best to let it run and potentially deliver further gains over a longer time frame.
Since various studies have shown that the majority of investment returns are derived from reinvesting dividends, it is perhaps unsurprising that Woodford has focused on dividends. While his funds may not have an exceptionally high yield at the present time (around 3.3% on his income fund), their dividend growth potential could be relatively high and sustainable.
With inflation hitting 2.3% and forecast to move higher, dividend growth could become increasingly important to investors. Therefore, it would be unsurprising for Neil Woodford's fund to perform relatively well, since tobacco and healthcare stocks may offer index-beating dividend growth rates. As such, his success could continue and Foolish investors following his investment style may be handsomely rewarded.