Woodford looks after the £1.5bn SJP UK High Income unit trust, plus the £333m UK Equity and £1.5bn Income Distribution life funds.
Since Woodford began managing the funds in 2001 at former employer Invesco to now the SJP UK High Income has returned 289.3%.
But performance in recent years has slumped, with the fund returning -4.1% over the last 12-months. Over three and five years it has returned just 5.4% and 33.4%.
Lucrative arrangement
Several sources have told Portfolio Adviser that SJP will stick by Woodford because of the commercially attractive arrangement it has with one of the UK’s most sought-after fund managers.
The SJP UK High Income mandate has an ongoing charges figure (OCF) of 1.66%, while the pair of Woodford-run life funds have a total expense ratio of 1.9% each.
SJP got Woodford for 35bps while he was at Invesco Perpetual and people Portfolio Adviser has spoken to say there is no reason that figure would have increased when the star manager launched his boutique.
These terms are commercially sensitive between the segregated mandate provider and fund manager and are not required to be disclosed like other fund costs under the new Mifid II rules.
This could lead to potential conflicts of interest if providers stay in commercially attractive arrangements despite fund manager underperformance, another source says.
In its client literature, SJP says its investment committee’s active track record of chopping and changing managers when they are no longer the correct fit reduces the burden on the end investor to decide which funds will yield the best results.
“We do not wait to act if we have lost confidence in a manager,” it says in a document outlining its approach to investment management.
SJP says this approach contrasts with “many other companies who simply try to provide access to as many existing funds in the market as possible”.
It has replaced nine managers on its mandates since November 2014, most recently kicking Stuart Mitchell off its £102.4m Continental Europe and £651.1m Greater European Progressive funds.
The committee famously dumped Invesco Perpetual from its £3.6bn UK equity income mandate for Woodford after he left the asset manager to set up his own boutique in 2014.
Transparency
Mike Barrett, consulting director at the Lang Cat, says he doesn’t expect SJP to “share their secret sauce with everyone,” but argues they could keep customers better informed, including flagging up managers they are keeping a closer eye on.
“How do they actually define and measure and benchmark what losing confidence actually means?” Barrett asks.
With Woodford in the spotlight for the better part of two years over performance issues, Barrett says having clarity on the committee’s thought processes around keeping him on the mandate has become even more important for SJP clients.
“The documentation they are publishing is clear to a degree but that is the one missing part to the picture,” he says.
“If I were a customer of SJP, I’m invested in Woodford and I have questions; I have read all the narrative and seen all the stuff that is happening there. How would they answer those questions?”
When asked for comment, SJP said: “We monitor all of our managers all of the time, including Woodford. This is one of the distinct features of our investment management approach, and we only make changes if they are appropriate for our clients taking into account a long-term investment horizon.”
