Woodford Investment Management has revealed further details about its new Income Focus fund, the third product to be managed by Neil Woodford, ahead of next month's launch.
Initial details about the new fund emerged at the end of last month with the group confirming the CF Woodford Income Focus fund, its second open-ended vehicle, would be launched on 20 March 2017.
Woodford (pictured), who set up the business and already runs the £9.6bn Woodford Equity Income fund and £765m Patient Capital trust, said the new offering will be the "final product" he will run as manager and will focus on income.
This focus will define the difference between the existing equity income fund and the new launch; some 25% of the existing vehicle is invested in unquoted companies that do not pay dividends, which will not be held in the Focus fund, while the new vehicle will also be a more concentrated proposition.
Woodford said: "I have built a dummy portfolio and it has approximately 50 stocks, so it is more concentrated than the Income fund. There will be a broad spectrum of large and small caps."
This compares to 122 stocks in the Equity Income portfolio, and 71 names in the Patient Capital Trust.
Of the 50 stocks expected to be held in the portfolio at launch, only 15-20 are likely to overlap with names already held in the Equity Income vehicle, Woodford said, adding there is "virtually no commonality" between the new fund and his investment trust.
Not a global fund
The overlap between the new fund and the holdings in Woodford's existing Equity Income portfolio was one of the key issue on fund buyers' minds when the launch was first revealed, but many were interested in the offering, especially its potential to invest more globally.
This new fund will have no geographical constraints, unlike the existing vehicle, but Woodford was careful to stress the aim of this is to remove the 20% overseas investment restriction in case he finds good opportunities abroad, and said it will not be a global product.
"I am not a global manager," Woodford said. "Running global funds is a different skill-set, and one I would not want to embrace. That is not what we are trying to do here.
"At launch, we will not be anywhere near the 20% overseas allocation, which reflects the fact that income can be generated really well in the domestic market. But in the past in my career there have been very attractive opportunities in overseas stocks."
As a result of the more flexible approach to geographical allocation, the fund will sit in the IA Specialist sector.
Meanwhile, investors have also questioned the lack of a yield target on the fund. The firm said the vehicle will aim to deliver an income of 5% per share in its first full calendar year in 2018, after which Woodford will target modest sustainable growth in per share income over a five-year rolling period.
Woodford said: "You will not hear us talking much about yield, as it is difficult to predict and is a function of the unit price. We will aim to grow the distribution by mid-single digits per annum, and deliver high single-digit returns over a three- to five-year period.
"Over the long term, there may be scope for better returns, for example if the de-equitisation of the UK market were to go into reverse, but that would be the icing on the cake."
However, given the fund's clear focus on income generation, it is understood investors should expect the fund to yield at least 20% more than the income delivered by the FTSE All-Share index over the period.
The fund's expenses will be absorbed into the fund's annual management charge (AMC), making this equal to the ongoing charges figure (OCF); for the retail share class, this will be 0.75% per annum.
A difficult 2016
Talking about his original Equity Income offering, Woodford said 2016 had been a "very poor year", where many of the sectors he invested in underperformed, and he was not represented in those that had done well.
However, he added: "Weirdly, I now find myself in the unfamiliar grounds of being slightly more optimistic than the consensus.
"I am seeing more value in the market than I have done for a long time. I think the UK economy will continue to perform better than people expect."
Although the Income Focus fund will be the last product to be managed by Woodford himself, the firm expects to hire external managers and build new products in time.
Woodford said: "We will probably supplement the team around me with more talent."
He added: "My preference is to recruit people who are not fully formed, because I believe this industry ruins them and teaches them the wrong things."
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