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Woodford Income Focus Fund Launch: All the Details

February 23, 2017

Neil Woodford has today confirmed that he will be launching a new Income Focus fund on March 20, subject to regulatory approval. Speaking to journalists in London he said this would be the final fund he will manage for Woodford Funds, completing plans set out at the launch of the company three years ago. However, he added that investors should expect the firm to launch other funds in the future, run by managers yet to be hired, growing the business to rival existing global asset managers.

“When we started the business, we always had three funds in mind which would sit across a risk spectrum,” Woodford said. “There will be some overlap in portfolio with Woodford Equity Income, but Equity Income is managed as a total return fund, targeting income and growth, so investors should expect the new fund to look quite different.”

For starters, there will be no 25% invested in unquoted companies, as every stock in Income Focus will be required to contribute to the yield. There will also be global stocks in the portfolio, although these will be in the minority, and the portfolio will remain predominantly domestically focused. Woodford does not want to be constrained by the Investment Association UK Equity Income sector requirement to have global stocks make up less than 20% of the total portfolio, and as a result the fund will sit in the Specialist Sector.

“I am not a global equity fund manager,” he said. “This is not a global fund. Being a global fund manager requires a different skill set, one I would not want to embrace.”

As reported, in the first calendar year the fund aims to deliver a 5p dividend yield on the launch price of £1 a unit, and steadily grow the dividend at around 3-5% a year. Woodford is keen to stress this is not a target yield as he “has no control over the underlying share price” which affects the yield percentage.

Woodford said that there was a strong demand for a fund of this type as investors in retirement look to generate a steady income from their portfolios in lieu of an annuity and other more traditional sources of income – such as cash and bonds – have “evaporated”.

The fund’s full portfolio and fees will be disclosed on a monthly basis, as the firm has done with Woodford Equity Income.

Low Interest Rates Here to Stay

Woodford said he expected the low-rate environment to continue for some time – saying that he would place a bet Bank of England Governor Mark Carney would retire in 2018 having “never raised interest rates”.

“I think there are challenges ahead, the fall in sterling creates real income pressures – wage inflation is not there and that puts pressure on consumers. I do think we will hit 3% inflation. But I don’t think the Monetary Policy Committee will put rates up,” he said.

“The UK economy will perform better than forecast but the global economic picture is not as strong and the Committee will be persuaded to be cautious. They may stop the quantitative easing programme but they will not put rates up.”

“I Had a Bad 2016 But am Feeling Bullish”

When questioned about valuations and the likelihood of a stock market correction, Woodford was bullish – in part because of his own lacklustre recent performance.

“Index growth in 2016 was driven by a very few sectors. The rally was narrow, concentrated. Not everything is Glencore and Anglo American. In fact the median stock in the FTSE 250 fell 4% last year,” he said.

“The index has risen but many stocks have gone down, including the ones I own. I had a bad 2016. But the economy has performed better than expected and the currency devaluation is very good for both domestic companies and the economy. Too much devaluation is a problem, but so is too high a currency. I think we are at fair value for the pound now, certainly against the dollar.

“The world is still a challenging place, and I remain fearful of deflation, but I am advocating a more bullish stance because I can see plenty of investment opportunities and I believe the consensus view on the economy is too bearish.”

Source: Morningstar. Emma Wall | 23/02/2017

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