Neil Woodford's giant income portfolios, two of the best performers over the past decade, have been given a ‘sell' rating in Sanlam Private Investments' (SPI) latest White List Income Study.
In the last report, released in August, SPI removed Woodford’s £9.1bn Invesco Perpetual Income from its White List of funds which have a long-term track record of delivering rising income alongside capital growth, but retained its ‘buy’ recommendation.
However, SPI is now urging income-hungry investors to ditch their stakes in both of Woodford’s income offerings, warning performance has become compromised by the high level of assets under management.
Woodford’s funds have been placed on SPI’s Grey List, defined as a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline.
Paul Surguy, author of the White List report, argues Woodford’s portfolio currently places too much emphasis on defensive UK mega-cap equities.
“The assets under management have led the portfolios to become very focused in many of the very large stocks in the market,” he said.
“We would prefer managers who are able to be more pragmatic in the face of swiftly changing circumstances, and therefore place ‘sell’ recommendations here.”
The Invesco Perpetual High Income fund has £11.9bn in assets, with new flows totalling £700m in the past year.
Meanwhile, the Invesco Perpetual Income fund has swelled by £300m since January last year.
Both funds suffered a tough 2012, slumping to the bottom quartile of the IMA UK Equity Income sector with a return of 9.3% each, below the 15.8% sector average, according to Morningstar to 11 January.
Woodford runs heavy overweight positions in the pharmaceutical and tobacco sectors, which both underperformed the market in 2012 following a number of earnings downgrades.
On a five-year view, the manager’s performance is slightly ahead of the sector average.
Woodford’s High Income fund has returned 21.6%, ahead of the peer group average return of 20.7%, while the Income fund has returned 21.5%.
Another high-profile fund SPI has labelled a Grey List ‘sell’ is the £2.2bn Newton Higher Income fund, formerly managed by Tineke Frikkee.
Last month Newton’s head of UK equities Richard Wilmot replaced Frikkee as lead manager after the fund slumped to the bottom quartile of the sector on a three-year view.
Newton announced plans to further reduce the fund’s yield target in a bid to improve performance, but SPI said Wilmot has got his work cut out given he has limited experience investing in the UK equity income sector.
“While we acknowledge Richard Wilmot has a good record in investing for growth, this is a different skill to income investing and, for this reason, coupled with the significant change in the process and inevitable lower yield, we are recommending investors sell,” said Surguy.
A number of veteran UK income managers, including Neptune’s Robin Geffen and PSigma’s Bill Mott, feature on SPI’s infamous Black List of funds it deems consistently provided sub-par performance over five years.
On a brighter note, the group has added Unicorn UK Income, PFS Chelverton UK Equity Income, Rathbone Blue Chip Income & Growth, and Schroder Income Maximiser to the White List.
The report calculates the best 14 funds in the sector based on seven different criteria over five years.
Clive Beagles’ JO Hambro UK Equity Income fund tops the list, followed by John McClure’s Unicorn UK Income fund, while Leigh Harrison and Richard Colwell’s Threadneedle UK Equity Alpha Income sits in third place.
More than £167,000 raised
Beware ‘temporary’ vulnerability
Partner Insight: A renewed focus on 'knowledge-intensive' companies should help investors realise that these entrepreneurial companies are found in sectors other than biotech or technology.
Celtic WM and Active Wealth