Jonathan Miller: Welcome to the Morningstar Manager Check-up where we start with the Woodford Equity Income fund. Neil Woodford is one of the UK’s most pre-eminent fund managers who started his boutique just over three years ago. His approach is best described as high-conviction, long-term, and contrarian in nature, combining his macro views with bottom-up stock selection.
It’s unconstrained against its benchmark and managed with a total-return mind-set. The objective being to grow capital and income, with a keen eye on capital preservation. There is a greater tilt further down the market cap scale than what we’ve see from Woodford in the past, but it’s here that he believes he can deliver the highest returns in the context of a low-growth environment. In our view we also commend the firm's regular communication, competitive fees and transparency, and the fund retains its Morningstar Analyst Rating of Silver.
Next, it’s on to the continent, through the Threadneedle European Select fund, which David Dudding has managed since 2008. His investment philosophy has stayed the same throughout, targeting firms with pricing power and high barriers to entry. This results in a concentrated portfolio of sturdy-growth companies such as L’Oréal and Unilever.
There’s large latitude to deviate from the index and when his quality growth style is out of favour, such as last year the fund will underperform. But given the preference for established franchise companies with low levels of debt, we believe that over the long term it bodes well for an attractive risk adjusted profile, with lower volatility than peers. We’ve therefore maintained the Morningstar Analyst Rating of Bronze.
Finally, we have the JPM US Equity Income fund. A version of this has existed for American investors since 2004, with the UK domiciled mirror launched nearly ten years ago. Clare Hart’s been at the helm since inception and is backed by a large research team.
The approach aims to deliver a combination of capital growth and income by investing in firms with consistent earnings, high returns on invested capital, durable franchises, and strong management. Peers in the category tend to have a more pronounced value tilt, but what we generally see for this fund is stronger earnings growth and higher return on equity. So it will likely lag in sharp rallies but there’s less downside volatility than peers. We believe investors are well served here and we’ve reaffirmed the Morningstar Analyst Rating of Silver.
