Neil Woodford: I’m right to be criticised for underperformance

Neil Woodford says criticism levelled against him for his funds’ underperformance over the summer is deserved, but says he is confident in the positioning of the portfolio in the face of a “dangerous” market consensus on China.

Woodford Equity Income was the second worst-performing fund in August, down 4 per cent, after a series of negative updates from his holdings behind MFM Techinvest Technology which was down 8.3 per cent.

Provident Financial shed two thirds of its stock market value following a profit warning and cancellation of the interim dividend. It followed double digit falls from pharmaceutical company Vernalis, AstraZeneca and AA.

“I’m very disappointed with the short-term performance and indeed, have been criticised for it,” Woodford says in a video interview on his website.

“People on our blog have been criticising me. I’ve been criticised in the media. And I think I’m right to be criticised. It’s been a difficult period.”

China consensus creates opportunities

Despite the disappointing summer, Woodford says there is “huge undervaluation” in his portfolio. “The underperformance is a product much more of the rather odd characteristics of this bull run in the stock market.”

The stock market is bidding up the prices of stocks providing exposure to Chinese credit growth, Woodford says. “I worry that the story that the market is chasing at the moment is dangerous. And that’s why I haven’t wanted to play that story.”

Woodford argues the Chinese administration has made 6.5 per cent GDP growth a “singular focus”, particularly as Xi Jinping prepares for the party Congress in several months’ time, where he will reassert his authority over the party and the economy.

“The stock market has decided that Asia, China is good, the UK is bad,” Woodford says.

However, the market consensus has created opportunities, where the funds are currently invested, Woodford says.

“So domestic economic cyclicals health care and indeed our small early stage portfolio none of those parts of the market provide any exposure to this sort of this one dimensional story that the market really loves.”