Woodford updates investors after top five position falls 70%

23 August 2017 – All fund managers have difficult periods in their careers and Neil Woodford is no exception. Having refused to buy technology stocks in the late nineties, and avoided banks in 2006, he has experienced periods of under-performance and his skills have been questioned before. However, his judgement has been correct more often than not and, over his 30 years in fund management, he has made a lot of money for investors.

His more recent misfortunes have been down to stock-specific issues rather than sector calls. Setbacks at Allied Minds, AA and AstraZeneca have impacted the performance of his funds in recent times.

This week, doorstep lender Provident Financial - a top five holding in his Woodford Equity Income and Woodford Income Focus funds - fell by 70% on the news that its chief executive had resigned. The announcement was accompanied by the company’s second profit warning in three months and the admission that the Financial Conduct Authority is investigating one of its products. The firm's interim dividend was also cancelled.

In an update to investors yesterday, Neil commented: “The problems that Provident Financial has faced in recent months concern its household consumer credit division and in particular the company’s recent decision to fundamentally change the way that the division operates.”

Neil said he had supported this change and trusted management to execute it successfully, given the track record the team’s track record. However, by June it had become apparent to him that the transition was not going as smoothly as anticipated.

“Importantly, this is not a credit quality problem – it is an operational issue which has been self-inflicted by the company. I spoke at length to the management about the issues that were being experienced and was reassured that the business knew the causes of the problems and what to do to rectify them,” the fund manager explained.

Neil described chief executive Peter Crooks’ resignation as ‘extremely disappointing’. Nevertheless, he believes the company has the potential to bounce back.

“It is worth reminding investors that the rest of Provident Financial is unaffected by today's announcement and that the company is still expected to make a profit at the group level.

“It is vital I do not let emotion influence my judgement. I am hugely disappointed by what has happened to the consumer credit division but I continue to believe that it will ultimately get back on track.”

Darius McDermott, managing director of Chelsea Financial Services, added: “All fund managers have difficult periods and it is clear Neil is having one at the moment. While he has suffered a handful of stock setbacks recently, it is important to remember that companies like Provident Financial only make up a small part of his funds.

“Negative headlines always get more prominence than the positive ones unfortunately, particularly when it comes to high profile fund managers. Neil has had a number of stocks that have done very well and if you look at his performance over the long term, you can see he has added a huge amount of value. He is still an excellent fund manager and retains our support.”

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius's and Neil's views are their own and do not constitute financial advice.

Published on 24/08/2017