Can Neil Woodford's reputation survive three years of under-performance?
You have to feel sorry for the super-successful, super-wealthy star fund manager Neil Woodford, who is suddenly in the headlines for the wrong reasons. After three decades of stonking outperformance, the knives are flashing. One annus horribilis is all it takes. Well, arguably, three years. So is the great man finished? Could be. It can happen to the best.
August's headlines made ugly reading. "Star investor Woodford hit by fortnight from hell." "Yet another Woodford debacle." "What's going wrong with Woodford?" And those are the polite ones. One or two I would blush to repeat here.
Things came to a head with the Provident Financial meltdown. Woodford owns a 19% stake in the doorstep lender and lost £326m when its shares crashed almost 70% in a day. Bad news comes in threes, the superstitious say, and Woodford has suffered a triple blow this year. In July, pharmaceuticals giant AstraZeneca, the biggest holding in CF Woodford Equity Income, plunged 15%, its largest ever fall. In April, outsize holding Allied Minds also suffered its biggest ever drop (Woodford holds more than a quarter of its stock).
As Oscar Wilde might have put it: To suffer one high-profile stock meltdown, Mr Woodford, may be regarded as a misfortune, to have two looks like carelessness. But three? Actually, I count four, including biotech stock Sphere Medical Holdings, which features in his dismal Patient Capital Trust. Wilde said nothing about four indignities, which turns into five if you include the AA, whose shares tanked after chief executive Bob Mackenzie's alleged bar punch-up madenews.
I have made good money from his triumphant Invesco Perpetual Income fund, so I owe a degree of loyalty. He has shown similar loyalty to his stock picks, routinely rushing to their defence, claiming for example that Provident Financial is now seriously undervalued.
So let's visit Trustnet.com to examine the performance of his flagship CF Woodford Equity Income, launched in June 2014. The £9.25bn fund is down -0.3% over the last year while its benchmark UK equity income sector is up a buoyant 10.5%. Embarrassingly, it is the sector's worst performer over three, six and 12 months and is only keeping its head above water thanks to a stonking first year, when it grew 16% against 2.8% for its sector.
Over three years Woodford has posted a second quartile showing of 25.2% but does not trouble the top 10. First-placed MI Chelverton UK Equity Income returned 41.6%, while even 10th-placed Neptune Income beat Woodford with 31.1%.
Woodford Patient Capital Trust has done worse, rising 3.8% in the last year against 16.3% on the All Companies index, after falling 18.5% the year before, against a 1.1% rise. I think there is a serious danger that Woodford is out of his depth here in his pursuit of smaller quoted and unquoted companies.
I will continue to hold CF Woodford Equity Income. Woodford has suffered periods of underperformance before and emerged with his reputation enhanced. However, that was often through making heroic contrarian calls, such as shunning booming tech and banking stocks. His recent troubles are down to poor stock picking, which is less heroic.
Woodford does invest in a lot of companies, and some will go wrong. But maybe running his own asset management company was a step too far? I detect signs of arrogance. Despite all this, I still reckon his star will shine again.
Harvey Jones hold units in Invesco Perpetual Income and CF Woodford Equity Income. The Motley Fool UK has recommended AstraZeneca. 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.