Woodford, Rathbones and Trojan disappoint in FE ratings

Neil Woodford’s flagship Equity Income fund was downgraded by data-provider FE Trustnet in its latest rebalance from five crowns to just one, six months after receiving the debut accolade.

Woodford, Rathbones and Trojan disappoint in FE ratings

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Previously unrated due to a lack of three-year track record, the Woodford Equity Income fund jumped straight to the top of the pile in its first FE crown rating last year.

Yet, the fund has quickly been demoted in FE’s most recent rebalance for the period July to December 2017. The Rathbone Income and Trojan Income funds also tumbled alongside, as they fell from five crowns to two.

Since the last rebalance, the IA UK Equity Income sector has taken a big hit, with the average fund losing 0.73 FE crowns. The ratings revealed that a total of 44 UK equity income funds downgraded and only two received the top five FE crown accolade.

No let-up for equity income

Robert Wilson, fund analyst at FE, said: “There’s been no let-up in the Equity Income sector’s troubles in the past six months. Concentration risk continued to wreak havoc – almost half of UK dividends come from a handful of companies – and managers not effectively managing this have been burnt.

“The last six months have had a tremendously negative impact on the LF Woodford Equity Income fund’s three-year numbers.”

According to Trustnet, Woodford’s fund has underperformed against the IA UK Equity Income benchmark over a six month, one-year and three-year period, producing returns of -7.7%, -0.2% and 13.9% respectively, versus the sector’s 3.1%, 11.1% and 23.9%.

In his first update of 2018, Woodford wrote: “As a value-orientated investor there are tough times, no more so than when markets are momentum driven as they have been for some time now – but valuation is the only catalyst for investment returns that I have ever trusted.”

He added: “Many of you will be aware that my views on market valuations and the broader macroeconomic conditions have gone against the consensus for a while now – and they remain so.

“While there are risks, there are equally opportunities – that is always the case when markets get carried away. I believe the best opportunities lie in UK domestically-focused stocks, a healthcare sector that has endured a prolonged bear market and companies (of all sizes) that have disruptive technologies at their core.”

The Rathbone Income fund also underperformed the benchmark, with returns of -1.1%, 7.7%, 22.2% over six months, one and three years, respectively. However, it outperformed over a five-year period with returns of 63.3% versus the sector’s 57.3%.

Likewise, the Trojan Income fund produced returns of -0.0%, 6.9% and 23.1% over the same periods, but outperformed over five years, with a return of 60.6%.

Mark Wharrier, assistant manager of the Trojan Income Fund, said: “Volatility has been notable by its absence in the performance of equity markets in the last couple of years. Higher levels of volatility in equities seems likely as interest rates flicker into life.

“While this may at times be unnerving, it is likely to generate stock specific opportunities. We look to take advantage of situations where the stock market overreacts to a short term disappointment in a fundamentally strong business.”

High rankers

While the UK sector disappointed, the IA Japan sector outperformed the index by 2.41%, between end June and end December 2017, and received the largest in percentage terms with 45% of funds receiving a four or five FE crown rating and 37 of 56 funds upgraded, an average upgrade of 0.71 crowns per fund.

Aside from Japan, 41% of funds in the China and Asia Pacific excluding Japan sectors received a four or five FE Crown rating.

Meanwhile, in the list of top 10 rated funds in terms of outright numbers of 5 FE crown rated funds, Old Mutual Global Investors – which was first place at the last rebalance – now shares the top spot with GAM.

Blackrock and Janus Henderson Investors share second place, while Baillie Gifford and Fidelity are joint third.

This rebalance marks Baillie Gifford’s first entry into the top three having previously occupied 15th place in July 2017.

The Polar Capital UK Absolute Equity fund was also high-ranking newcomer, with positive returns of 47.51% last year.

FE said that all sectors have seen some churn in the ratings of their funds and 45% of funds have gained or lost FE Crowns at this rebalance.

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