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Charles Stanley drops Woodford from fund tip list

Charles Stanley drops Woodford from fund tip list

Charles Stanley has removed the LF Woodford Equity Income fund from its direct investor buy list over concerns that its returns are being disproportionately impacted by a long tail of micro cap holdings.

The fund had been a mainstay of Charles Stanley Direct’s 54-strong Foundation Fundlist of its best collective ideas since January 2015.

The decision is another marker of how far Neil Woodford has fallen from favour in the last year, as the portfolio has been impacted by a number of issues. Several high conviction stock holdings have suffered big hits (see here, here and here), and lower overall assets have ensured the unlisted portion of the portfolio has been increasingly inflated.

Jupiter’s Merlin team cashed out its £300 million stake in the fund in October last year. The head of the strategy John Chatfeild-Roberts had previously invested in Woodford’s fund for 20 years.

A spokesperson for Charles Stanley said data rules prevented the group from disclosing how much in client assets were held in Woodford Equity Income via the platform, and it would not be adding a mandate to replace the loss.  

The business said £2.7 billion in total client assets were held via the platform at the end of 2017.  

In a statement to clients, Charles Stanley investment analyst Rob Morgan paid tribute to Woodford’s ‘excellent communications’ and his commitment to ‘genuinely offering the active stock selection and differentiation he promised’.

But he added that continued investment in the fund meant accepting a higher degree of stock concentration risk than the company was comfortable with as a general retail recommendation.

‘We have begun to harbour some concerns that overall performance from this equity income fund may become increasingly impacted by a relatively small number of existing high growth and earlier-stage businesses in the portfolio,’ he said.

‘Our level of discomfort that the positive factors could be outweighed by more limited options in terms of the make-up and diversification of the higher growth part of the fund is small.

‘We still believe it is a high quality fund and following a tricky period there may be considerable potential in the portfolio as it currently stands. Yet the Foundation Fundlist is reserved for our highest conviction investment ideas, so we feel it is right to remove the fund from the list at this juncture while we monitor it further and explore various options within the UK equity income sector.’

Last month, Woodford reported that assets within his Equity Income fund had fallen from £10.2 billion in May 2017 to £6.5 billion, the first time the portfolio had dipped below a net value of £7 billion since 2015.

Over the last three years the portfolio has returned 2.76% versus a peer average of 17.4% placing it 100th out of 102 mandates in the sector.

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John Chatfeild-Roberts
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