Woodford replacement faces outflows since Aviva boost

Negative UK equities sentiment hits Threadneedle fund

Threadneedle UK Equity Income has suffered net outflows for the last seven months despite replacing Woodford Equity Income on Aviva’s workplace platform, according to Morningstar Direct. At the time, the switch affected around £30m from Aviva’s investment range for workplace pension customers.

The £4.3bn Threadneedle UK Equity Income fund, run by Richard Colwell (pictured), had recorded its largest net inflow in two years (£188m) last November, the month it was added to the Aviva platform. However, its fortunes have changed in the period since, facing net outflows each month since December.

Woodford Equity Income vs Threadneedle UK Equity Income flows H1 2018

Estimated net fund flowsJan 2018Feb 2018March 2018April 2018May 2018June 2018
Woodford Equity Income(£201m)(£268m)(£355m)(£180m)(£247m)(£217m)
Threadneedle UK Equity Income(£26m)(£24m)(£45m)(£23m)(£46m)(£45m)
Source: Morningstar

Brexit hits UK equity sentiment

Ryan Hughes head of active portfolios at AJ Bell said he wasn’t surprised by the fund’s outflows this year given that UK equity and UK equity income strategies remain unloved.

Last Word Research data, however, has revealed professional investors are changing their tune on UK equities and are planning to increase allocations in Q3 following 13 months of negative sentiment.

Threadneedle UK Equity Income has recorded net outflows for 15 out of 24 months since July 2016, the month following the UK vote to leave the referendum. Woodford Equity Income fund suffered monthly net redemptions 17 times over that same period. However, in H2 2016, during the immediate aftermath of Brexit, Woodford Equity Income fund recorded just one month of net outflows, in July, versus five months at Threadneedle UK Equity Income, which only saw net inflows in August.

Columbia Threadneedle disputed the Morningstar figures, but would not disclose its internal data on fund flows.

Hughes’ flow findings were consistent with Morningstar’s – net outflows this year and net inflows for 2017.

He added that Colwell’s outflows might be explained by the fund’s mature book of business. “It’s a fund that has been around a long time and has been a favourite for a long time and as such, through natural attrition, holdings will get redeemed over time,” he said.

Richard Colwell’s consistent performance

Hughes said the redemptions were in spite of very good performance from Colwell’s fund, which he said is “one of the more consistent equity income funds in the market and has been for a long time”.

Threadneedle UK Equity Income has returned 9.5% over one year versus the IA UK Equity Income sector’s 5.8% and is first quartile over one, three and five years. Woodford’s fund has returned -7.2% compared with the IA UK All Companies’ 8.2%. It was ejected from the IA UK Equity Income sector earlier this year.

Colwell’s fund has also grown over the same period, despite clients pulling money out. The total net assets of the fund were £4.06bn last June and are now at £4.28bn.

Following high-profile redemptions and performance troubles, Woodford’s fund has shrivelled by £4bn within a year, dropping from £10.13bn last June to its current £6.02bn.

Evenlode reaps inflows from Woodford

Aviva was among the handful of major investors that dropped Woodford’s flagship Equity Income fund from their mandate over performance or investment style concerns.

The John Chatfeild Robert-led Jupiter Merlin team, the first high profile manager to ditch Woodford, and Architas’ multi-asset team swapped out the star manager’s fund for Evenlode Income, run by younger rival Hugh Yarrow.

In contrast to Colwell, Yarrow’s fund has posted net inflows for the last 10 consecutive months.

Aviva and Woodford Investment Management declined to comment.

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