01 February 2017
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Woodford Investment Management has announced that its founder and star fund manager Neil Woodford is to launch a higher yielding version of his flagship £9bn (€10.5bn) Income fund in March.
The new fund, set to be called Woodford Income Focus will have an overseas ‘Brexit buffer’ option as it is able invest more in global shares, unlike the existing Woodford Equity Income fund, which can only invest 20% overseas. However, given Woodford’s expertise, the new fund is still likely to be predominantly UK-focused, but without the geographical constraints. The option is there to take higher positions in global opportunities, when needed, the company confirmed in a segment announcing the launch today.
The new Income Focus fund is not expected to target a specific yield but instead to provide 20% more than the FTSE All-Share over a rolling five-year period.
As reported here last summer, the fund has been on the Woodford radar for some time.
A spokesperson for the company, said: “Woodford Investment Management confirmed that it intends to launch the CF Woodford Income Focus Fund in March 2017, with a fixed-offer period. The dates will be confirmed in due course.”
The new fund will aim to deliver an income of around 5p per share (based on an offer price of 100p at launch) during its first full calendar year in 2018, after which will aim to deliver modest sustainable growth in per share income over a five-year rolling period.
Industry reaction
Given the elevated profile of Woodford in the UK and international investment world, any new launch is bound to have a interest from investors and financial advisers across the globe.
Jason Hollands, managing director business development and communication, Tilney Group said: “Woodford has a loyal fan base and with income investments in demand at a time of low yields, this fund will likely to prove very popular. This fund seems like it is aimed to cater for investors who definitely do want to draw an income from their investment.
“The exclusion of unquoted companies will also be welcomed by some. While these fit the mandate of Woodford Patient Capital, you have to question whether such companies – some of which will generate no dividends – are appropriate for income mandates.
“These types of businesses can also be very risky investments, where the outcomes can be quite binary,” he said.
Sector uncertainty
Hollands pointed that the ability to invest internationally, with no formal constraint suggests the fund is unlikely to be eligible for inclusion in the UK Equity Income sector, even though the lion share of stocks are expected to be UK listed companies and the yield target is to beat the yield on the UK’s FTSE All Share Index by 20% on a five-year rolling basis.
This, Hollands says, could mean the fund might end up in the Global Income sector where it will be up against funds that are typically 40 – 55% invested in the US, something that might impact its sector performance statistics.
Patrick Connolly, investment specialist IFA at Chase De Vere, pictured left, said: “Despite disappointing performance in 2016, there is no denying Woodford’s excellent long-term performance record.
“This new fund launch will be popular and will probably be heavily promoted by the execution-only brokers. Our only concern would be the risk that Woodford is stretching himself too widely by running different investment mandates, although he has shown in the past that he is capable of managing large amounts of money.”
Brexit protection
Ryan Hughes, head of Fund Selection at AJ Bell, said that the funds flexibility could give it a form a protection against the uncertainties surrounding Brexit.
“By specifically excluding unquoted stocks, the focus on income generation is clear while the flexibility to look overseas will also offer a much wider opportunity set should the UK economy falter in the face of potential headwinds from the forthcoming Brexit.
“With the demand for income an ever increasing trend, it is little surprise that the new Income Focus fund will look to tap into that need,” he added.
