New managers braced as Woodford fund set to reopen

Charles Luke and Thomas Moore of Aberdeen Standard Investments, the new managers of Neil Woodford’s Income Focus fund, were today braced for a rush to the exits when it reopened following a four month suspension

The duo took control of the £258m fund in December  and have retained just three of Woodford’s original stocks as they have transited to larger companies

Following the collapse of Mr Woodford’s empire in the most ignominious circumstance, Mssrs Luke and Moore insist they are ready to handle mass withdrawals of cash by customers after shifting money into low-risk firms with high liquidity – easy-to-sell stock.

Mr Luke said: ‘We don’t know what’s going to happen, but we’re ready.’

Mr Woodford decided to close his business after being sacked from running his flagship Equity Income fund following a string of bad bets; Income Focus was his second fund which he also relinquished control over.

‘We don’t know what’s going to happen, but we’re ready.’

Equity Income is being wound up but following a major rescue effort at Income Focus, it is now ready to open its doors again.

The three stocks that Mr Luke and Mr Moore have remained invested in are Babcock International, British American Tobacco (BAT) and Vistry Group (formerly Bovis Homes).

Mr Luke told The Telegraph that BAT remains a good investment, with the market too pessimistic about regulation in the tobacco sector; ‘Babcock is a good quality business trading at a attractive price’, he said.

The managers were particularly keen to cut Mr Woodford’s exposure to the housing sector.

Mr Luke said: ‘Before the fund was overly exposed to the British economy, especially the housing sector through companies like Purple Bricks, Barratt Developments and Royal Bank of Scotland. It was not responsible to have such a large exposure to one sector.

‘the portfolio overhaul is almost complete and the fund is now strongly positioned to provide growth and income’

‘Diversification is key now. We do not want to be reliant on one sector for income or growth.’

A big and inevitable change was a reduction in the amount invested in smaller companies. Woodford invested 30% of the fund in small caps; all of this has now been removed and re-invested in larger stocks which can be sold in a hurry if investors demand their cash back.

Mr Luke said this has made the fund less risky but investors’ returns were hit after the managers were forced to sell stakes at lower prices in a fire sale.

P2P lender Honeycomb Investment Trust was sold at discount and knocked 0.5% off the fund’s value in one fell swoop.

Despite the new managers’ changes the fund has lagged behind the FTSE All Share, a general measure of the health of the British stock market; it has shed nearly 5% so far in 2020 compared with a 1% dip in the index.

Mr Luke said some of this was due to the stocks they had purchased – TUI Group slumped by 22% in January due to coronavirus –whilst some was also down to Mr Woodford’s picks such as Card Factory which has fallen 39% this year.

The pair say the portfolio overhaul is almost complete and the fund is now strongly positioned to provide growth and income; some international exposure has been added, including Coca-Cola Hellenic and emerging markets fund manager Ashmore.