The fund has had a cracking year, delivering a total return of 16.5% in its first 12 months, versus 5.8% from the IA UK Equity Income average and 3.1% from the FTSE All Share.
Given Invesco Perpetual Income and High Income funds – now run by Mark Barnett – have since left the IA UK Equity Income sector after failing to meet the three year yield requirement, perhaps the most accurate comparison with CF Woodford Equity Income would be with the similarly revered £7.4bn Artemis Income, managed by Adrian Frost and Adrian Gosden.
Ken Rayner, director at Rayner Spencer Mills Research, picks out both of these funds, and their managers as having “significant market influence”.
Artemis Income delivered a total return more in line with the IA UK Equity Income sector average over 12 months, though it has beaten the FTSE All Share.
“Since the new Woodford fund launched it has comfortably outperformed the Artemis fund, mainly due to holdings in the healthcare sector but also because of a higher industrials weighting and very little oil and gas exposure,” says Rayner.
“If there was an improvement in cyclical areas such as financials, we would see the Artemis fund begin to perform more strongly.”
He adds: “The Artemis Income Fund offers lower tracking error, which means it is ideal for investors who do not want to deviate their risk-return profile significantly from the FTSE All Share.
“The Woodford Equity Income Fund, based on the manager’s overall track record at Invesco and Woodford, should offer a higher active risk approach and therefore it is more suitable for investors who are ready to accept the lower beta approach.”
Downsizing
For Stephen Peters, investment analyst at Charles Stanley, it is these bigger funds that may struggle going forward, especially those full of defensive names and which, because of their size, are unable to invest further down the cap scale.
For example, he worries about the prospects for Nick Train’s CF Lindsell Train UK Equity Income Fund, with its large holdings in the likes of Unilever and Diageo.
Still, looking across other key managers in the UK Equity Income sector, the overlap/ correlation in terms of top-10 positions is in many cases very low. For example, according to FE Trustnet, CF Woodford and Lindsell Train UK Equity Income Funds have a correlation of 0.85 with not a single top-10 position in common.
In terms of the winners going forward, Peters picks out the £222m Standard Life Equity Income Trust (and the larger open-ended UK Equity Income Unconstrained fund), run by Thomas Moore, who has been moving out of so-called large-cap ‘bond proxies’ in favour of less expensive mid-cap names.
In the trust’s half-yearly results, Moore spoke of his preference for consumer-facing areas, in anticipation of a sharp pick-up in domestic consumer demand.
Complex case
He also identifies grounds for caution for the wider UK market.
He says: “In addition to ongoing geopolitical risk, the UK market may continue to suffer from mixed earnings momentum at sector level, with ongoing earnings downgrades afflicting such sectors as mining and oil & gas.
