Link’s choice of an Aberdeen Standard Investments duo to take over the Woodford Income Focus fund suggests it is prioritising teams over star managers, but commentators have expressed concerns about Thomas Moore’s and Charles Luke’s performance issues and lack of experience running a concentrated fund.
The fund’s authorised corporate director Link Fund Solutions announced it would be handing the reins to Aberdeen Standard on Friday. The change will see Woodford Income Focus rebranded as the LF ASI Income Focus Fund, subject to regulatory approval.
Aberdeen Standard UK equity income managers Luke and Moore will co-manage the fund with support from the asset manager’s 16-person strong UK equity team.
Woodford Income Focus suspended on 15 October, immediately following news that Woodford Investment Management was winding down.
Team over star manager
Link’s picks to succeed Woodford on his Income Focus fund are less high profile than the former star manager.
Chelsea Financial Services managing director Darius McDermott said he was less familiar with Luke than Moore but said the key thing was the team of analysts behind them.
“ASI has a strong UK equity team that is very well-resourced with over a dozen analysts,” he said. “If you had picked either of those managers you would be getting a very strong and robust team,” he said.
“Thomas Moore may not be a well–known name in equity income, but he is an experienced fund manager in a competitive space, having previously been seen as a rising star himself,” said Willis Owen head of personal investing Adrian Lowcock.
“The star status has a lot to do with the culture of the company and as such I think ASI have the resources and skills to keep that in check,” he continued. “A duo running the fund will no doubt help, but it is important to remember that a well–run fund is more often than not a result of a good team.”
McDermott added that Moore’s value contrarian approach fits well with Woodford’s own style. “Five years ago I wouldn’t have thought of him as a contrarian value manager specifically,” he said of Moore. “He’s always had a care to value.”
Concentrated fund a departure for Moore and Luke
AJ Bell head of active portfolios Ryan Hughes said Moore’s and Luke’s lack of experience managing a highly concentrated fund and the incoming pair’s failure to beat the FTSE All Share over the last five years may give investors cause for concern.
He points out that the ASI Income Focus fund’s goal of having a high conviction portfolio of 30 names is “significantly more concentrated” than the existing funds they manage at ASI which contain around 60 stocks each.
Moore’s ASI UK Income Unconstrained Equity fund has struggled relative to peers in the IA UK Equity Income sector and has consistently been in the fourth quartile over one, three and five years. Though Hughes notes his “long-term track record has been impressive”.
Luke’s ASI UK Income Equity funds has seen stronger performance in the short-term landing in the top quartile of funds over one and three years but on a five year view it has only just beat the sector average, returning 40.0% against the sector’s 38.8%.
| 3m | 6m | 1y | 3y | 5y | |
| ASI UK Income Unconstrained Equity | 5.8 | 5.2 | 11.0 | 14.0 | 22.8 |
| ASI UK Income Equity | 7.0 | 9.3 | 25.3 | 26.5 | 40.0 |
| IA UK Equity Income | 6.6 | 7.8 | 18.9 | 20.2 | 38.8 |
Source: Trustnet
McDermott said that like Woodford Moore’s performance has suffered over the last 12 to 18 months because of his bias toward UK domestics “which until very recently has been a very painful trade”.
Hughes added that investors should also be aware they could face additional costs as Moore and Luke chop and change the existing fund.
“Investors may be heartened to see that there is minimal crossover between Woodford Income Focus and the portfolios managed by Moore and Luke, however, this does indicate that a significant amount of portfolio adjustment will be needed that will result in costs being incurred by investors,” he said.
‘We are resolute in our determination to turn things around’
Aberdeen Standard said its priority would be to reposition the portfolio “as efficiently and effectively as possible for the existing shareholders” and would be re-opening the fund no later than February.
Fees on the £267.6m fund will be waived until 31 May 2020.
“The team and I are honoured to have been given the opportunity to act as Investment Manager of the LF ASI Income Focus Fund,” said ASI head of UK equities, Andrew Millington.
“We recognise the issues that may have weighed on the minds of investors in the fund over the past months and we are resolute in our determination to turn things around for them. We will reposition the Fund into a focused portfolio of our favoured, liquid UK equity income names aiming to generate sustainable long-term income growth for its investors. The scale of our UK equity business means we will manage turnover of stocks to minimise costs and set the Fund on the right track for 2020 and beyond.”
Aberdeen Standard touts ‘rigorous’ liquidity and risk management
Aberdeen Standard was keen to distinguish its approach from Woodford’s on issues like liquidity and risk management.
Managers Luke and Moore will build a “high conviction portfolio” of 30 liquid UK equity names, which represents the best income ideas from the UK equity research team.
Aberdeen Standard identified fundamental research as key to the team’s investment approach of exploiting inefficiencies in the market and said it maintains full coverage of the FTSE 350 conducting 750 company meetings annually.
It also highlighted risk management as an “integral part” of Aberdeen Standard’s management process.
Portfolios are formally reviewed on a regular basis “as part of a rigorous and well–established management and peer review process” and Aberdeen Standard has a stand-alone investment governance and oversight team to perform risk and liquidity analysis.
In another departure from Woodford, Aberdeen Standard said it would be selecting companies based on ESG considerations which it said “is at the heart of our investment process” and can mitigate risks and enhance returns for clients.
Woodford Income Focus was the last of the beleaguered manager’s funds whose fate was uncertain.
Schroders was awarded Woodford Patient Capital Trust at the end of October, while Woodford’s Equity Income fund is in the process of being wound-down. Investors in Woodford’s flagship fund are forecast to lose 33% during the wind-up process, which is being conducted by Blackrock and PJT Partners.
