Neil Woodford, Britain’s best-known fund manager, is set to launch a new high-income fund. Woodford Investment Management sent out a questionnaire to private investors and advisers last week seeking their views on a proposed fund that would offer a substantially higher yield than the existing Woodford Equity Income fund.
The fund would aim for a starting yield of between 4.2% and 4.5%, according to the document, compared with the average 3.5% yield of its existing £8.7bn Woodford Equity Income fund. The fund would invest primarily in UK-listed companies, but Woodford and his team would have the flexibility to invest “anywhere in the world where they identify a suitable investment opportunity”.
There are obvious similarities between Woodford’s proposal to launch a high-income version of a current fund and his former work at investment management company Invesco Perpetual, where he managed both the Income and High Income funds. However, in practice the distinction between the two strategies at Invesco was not always clear: the high-income fund sometimes failed to live up to its name, with its yield falling below that of the Income fund. The proposed fund seems to be more firmly focused on getting a high but sustainable yield.
The new launch is likely to attract considerable attention from investors, given the success of Woodford’s two launches since he left Invesco to set up his own fund in 2014. Woodford Equity Income was the top-selling fund among retail investors last year. It has performed very well, returning 19.1% since launch in June 2014, compared with 0.57% for the FTSE All Share index. His Patient Capital Trust, which invests in early-stage growth business, was the largest-ever fundraising for a new investment trust when it listed last year.
It seems likely that Woodford Equity Income will offer better potential total returns (that is, returns taking into account both income and capital gains) than a high-income offering. That’s because the existing fund includes a number of smaller stocks and unquoted companies that have greater growth potential than the larger dividend-paying blue chips that make up most of the portfolio.
The proposed fund is intended to invest in listed companies only. However, investors who are looking to maximise their current income may well be drawn to the new fund by Woodford’s strong track record. Depending on feedback, the firm is said to be planning to launch it before the end of this year.