When I look at my Stocks and Shares ISA portfolio of investment funds it is a sea of blue, which is my favourite colour because this means they’re all in profit. Well, nearly all. Of the 13 funds assembled over the past decade or two, one sticks out like a big fat red sore thumb.
Unlucky 13 is CF Woodford Equity Income. Ace fund manager Neil Woodford was supposed to head the pack, not trail it. Mr Blue, not Mr Red.
I first bought units in his fund in January 2015, with a couple of small top-ups later that year. After more than four years, I am in the red by 0.16%. That is only a tiny loss because I was lucky enough to get in when Mr Woodford still delivered.
I’ve stayed loyal and fought his corner in these pages. In December, I valiantly tipped him to fight back in 2019. Here are three reasons why I’m beginning to lose heart.
1. He deserves to be relegated
Fund management is like football management: reputations rest on results. There is a difference, though. Football managers pay for bad performance with their job. As owner manager, Woodford stays in post even as punters walk out of the door. His flagship fund peaked at £10.2bn in May 2017, today it manages just £4.3bn.
Recent results have been woeful. Trustnet.com figures show that over three years, the UK All Companies sector returned 28.9%. Woodford fell 7.2%. As for fighting back in 2019, forget it. His benchmark sector is up 8.1%, he is down 1.2%. In Premier League terms, Woodford has a Manchester City profile, and Huddersfield form.
2. He’s destroyed my faith in star managers
My faith in star managers has never been that strong, I have seen too many enjoy a day or two in the spotlight, then fade. Typically, I prefer trackers for core markets like the UK and US.
Neil Woodford was the great exception after smashing markets for 25 years, and dodging the dotcom crash and banking crisis. Now it turns out he’s fallible after all. Every manager can expect the odd stock picking disaster but he’s had too many lately.
Do I want to hold a fund that still has a 5% stake in doorstep lender Provident Financial? That’s a stock I wouldn’t touch myself, yet he owns a quarter of the calamity and is backing a £1.3bn takeover bid to buy the rest of it.
And don’t get me started on misguided investment trust foray Woodford Patient Capital. Luckily, I dodged that bullet.
3. Trackers charge less
There is another reason I prefer trackers – their fees are so much lower. Thankfully, actively-managed fund fees have been driven from the days when you paid 5.25% upfront, and up to 1.75% a year. Woodford Equity Income has zero initial fee, and an annual charge of just 0.75%.
However, iShares Core FTSE 100 ETF has an annual charge of just 0.07%. Say you invest £10,000 and both funds grow 5% a year on average over 20 years. With Woodford, you would have £22,898 but £26,181 with the ETF. That’s £3,283 more due to charges alone.
Of course Woodford might justify the higher fee by storming back into form. I’m holding on, just in case, but I’m not too hopeful.
Harvey Jones has no position in any of the 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.
Motley Fool UK 2019