New blow for Woodford as Morningstar downgrades rating

Morningstar has cut its rating in the £6.6bn Woodford Equity Income fund from Silver to Bronze.

Fund research agency Morningstar said that it among the reasons it had decided to downgrade fund manager Neil Woodford – one of the best-known and best-supported fund managers in the industry – was
that the flagship £6.6bn Woodford Equity Income fund has a “greater exposure to stocks found at the lower end of the market-cap scale and to unquoted companies”.

Peter Brunt, senior analyst, manager research at Morningstar, said: “While Neil Woodford, pictured above, is broadly targeting the same kind of opportunities as those of his Invesco Perpetual days, there is a greater exposure to stocks found at the lower end of the market-cap scale and to unquoted companies.

“The bias to the former has become far more pronounced over the past couple of years, in part as a result of Woodford’s more positive view on the UK economy since first-quarter 2017.

Sizeable redemptions

“While the group has shown its ability to meet sizable redemptions over the past year, with the fund still standing at over £6bn, such extreme positioning in less-liquid parts of the market make it less nimble than competitors.”

In his analysis Brunt added that the decision to downgrade was taken as a number of high-conviction holdings have also experienced stock-specific problems over the past couple of years.

“While contrarian investing comes with a degree of risk and issues could be expected from time to time, the nature of some of the problems and respective position sizes in the portfolio give us cause for concern,” Brunt added.

“As a result, while we believe that the fund still has long-term investment merit, our conviction has waned, seeing the Morningstar Analyst Rating lowered to Bronze.”

Elsewhere this week Morningstar said tat it has upgraded the following funds: MS INVF US Advantage – Silver; Nedgroup Investments Global Flexible – Gold; Invesco Asian Equity – Silver; Robeco Global Consumer Trends – Silver

Gary Robinson
Head of Video and Ezines at Open Door Media Publishing. Deputy Editor, International Investment. An experienced journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as a fully qualified IFA, Gary works across both International Investment and InvestmentEurope titles. Previous video production credits include projects on BBC, C4 and SKY.

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