Woodford IM’s new fund ‘will cannibalise existing fund’

Neil Woodford

The new higher income fund being launched by Woodford Investment Management has received a mixed reaction from fund commentators.

Woodford Income Focus is being rolled out in March and will target a yield of 5 per cent with at least 85 per cent of the portfolio invested in dividend-paying assets.

Ben Yearsley, investment director at Wealth Club, says that while the new launch will prove popular he is not sure it will differentiate itself from the existing £9.3bn Woodford Equity Income fund.

He says: “Surely the new Woodford fund will cannibalise the existing fund? There is bound to be a strong overlap as Neil Woodford already buys overseas holdings within the main fund, and obviously some of his favourite stocks are in the UK. Therefore a ‘go anywhere’ fund will have elements of both of these. Undoubtedly though it will raise a lot of money.”

Mark Dampier, head of investment research at Hargreaves Lansdown, says he expects the new fund will not be as growth orientated as the existing fund.

“The new fund differs from Woodford Equity Income by focusing on producing a high income. With a million more people reaching age 65 by 2020 the need for income with interest rates so low has never been greater.

Dampier says that while the new fund will be able to hold 20 per cent overseas – the same as the existing fund – he expects it to launch with “a substantially UK focus”.

He adds: “From a launch price of 100p, Woodford is aiming to provide a pretty punchy 5p income in 2018 and this will limit the opportunity for growth, so for me this fund will be very much for those seeking and prioritising income over growth. This contrasts to the Woodford Equity Income which is more growth orientated.”

Ryan Hughes, head of fund selection at AJ Bell, is not surprised Woodford IM is responding to the increasing income requirements of investors.

“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.

“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.”