Woodford Investment Management (WIM) confirmed that the IA had moved the fund out of the UK Equity Income sector and into the UK All Companies sector for failing to deliver the income requirements of the former.
To be eligible for the Equity Income sector a fund must deliver a higher income than the FTSE All Share index over rolling three-year periods. However, over a three-year period the Woodford Equity Income delivered an average yield of 3.5% versus the IA sector’s 3.6%.
| Year ending | Woodford Equity Income (% yield) | FTSE All Share (% yield) |
| 31/12/2015 | 3.4 | 3.7 |
| 31/12/2016 | 3.4 | 3.5 |
| 31/12/2017 | 3.6 | 3.6 |
| 3 year average | 3.5 | 3.6 |
Source: The Investment Association & Woodford Investment Management (produced by Hargreaves Lansdown)
A statement from WIM said Woodford believes his strategy of delivering positive long-term total returns through income and capital growth is in the best interests of investors, rather than shooting the lights out for income over the short term.
“He has never been willing to sacrifice capital to supplement income in the short-term and his portfolio construction isn’t dictated by yield considerations,” it said.
It added: “Neil’s focus for the LF Woodford Equity Income Fund and his previous equity income funds has been, and always will be, on delivering a particular level of income per share, rather than a specific yield.
“From the outset, Neil said he would aim to deliver 4p based on the launch price of £1 and grow that income each year. That commitment remains.”
| Average pence per share across share classes | |
| Year | Price |
| 2015 | 4.0259p |
| 2016 | 4.0993p |
| 2017 | 4.1798p |
Source: Northern Trust
WIM conceded that managing the Equity Income fund in this way is always likely to be challenging given the parameters set by the IA, but added: “We are comfortable that the fund will now sit in the UK All Companies sector.”
It has recommended the IA removes the headline yield target for the UK Equity Income sector, as it believes it does not effectively capture the impact of dividend growth over the long term.
Rough guide
Laith Khalaf, senior analyst at Hargreaves Lansdown, said the platform provider was sticking with Woodford as he endures one of the toughest periods of his 30-year career, saying fund sectors should only be seen as a rough guide to what a fund does and do not replace looking under the bonnet.
He added: “Though he has had a difficult period of late, Neil Woodford has turned £1 into almost £27 over his entire career, compared with the £12 from the UK stock market, and that long term record shouldn’t be ignored.
“We think the Woodford Equity Income fund can work well alongside other equity income funds as part of a diversified income portfolio, as well as being considered by those who seek to maximise total returns over the long run. The Woodford Income Focus fund was launched last year for those investors who place more emphasis on income upfront.”
In good company
Hargreaves Lansdown noted several UK income funds already sit in in the IA UK All Companies sector, including the two Invesco Perpetual income funds formerly managed by Woodford and now managed by Mark Barnett.
Income funds currently in the IA UK All Companies sector include:
- Evenlode Income
- HC Charteris Premium Income
- Invesco Perpetual High Income
- Invesco Perpetual Income
- Invesco Perpetual Strategic Income
- Jupiter Responsible Income
- Montanaro UK Income
