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Fund manager Neil Woodford has apologised to investors for the 'incredibly painful' run of poor performance for his funds.
Woodford's flagship £9.8 billion Woodford Equity Income fund is the worst performer in the Investment Association's UK Equity Income sector over 12 months, and the only fund to have made a loss over that period.
His Woodford Income Focus fund has delivered flat returns since its launch in April, while shares in his Woodford Patent Capital (WPCT) investment trust continue to trade below their 100p issue price more than two years since its launch.
In a video interview published on Woodford Investment Management's website, Woodford said the funds' difficult run had been an 'incredibly painful and difficult thing to have to navigate'.
'I'm very sorry for the poor performance that we've delivered really now since 2016.'
You can watch the video below and read the transcript here.
By far the biggest blow has been the collapse in the shares of Provident Financial (PFG) after the doorstep lender last month delivered its second profit warning in two months, announced the departure of chief executive Peter Crook, scrapped its dividend and revealed an FCA investigation into its repayment option plan product.
The shares tumbled 67% in a single day, and remain 55% down since the barrage of bad news was delivered. That sparked a slide in the Woodford Equity Income fund, which held 4.1% of its portfolio in the stock at the end of July, and the Woodford Income Focus fund, which held 3.4%.
Woodford acknowledged the damage the stock had done to its fund but said the stock market reaction had been 'hysterical'.
'Clearly, owning as much as I did in Provident Financial has been harmful for the funds, because the stock has fallen a hell of a long way, in my view a disproportionate amount,' he said.
'Clearly, the share price should have fallen to reflect the profit warnings that we've seen. But I think the stock market, yet again, has become hysterical and, yet again, has multiplied many times the impact of all of this problem in the home credit business.'
He dismissed criticism over the size of the stakes he takes in businesses following Provident Financial's share price crash.
'I don't believe that there is a problem with owning a large stake in a business that is profoundly undervalued,' he said.
'My career has been built on taking big bets in businesses that have been profoundly undervalued. Clearly, lots of active managers who have closet index portfolios will be quite happy to have very small stakes in businesses. But that isn't how I run money.'
Woodford argued that while shocks such as Provident Financial's share price collapse, or the big drop in the shares of top holding AstraZeneca (AZN) on the failure of its crucial Mystic drug trial, had hurt performance, he said broader stock market trends were behind the poor run.
'It's tempting to think, well, maybe the underperformance is a product of these sort of company specific problems. And certainly, they've not helped,' he said.
'But for me, when I think about the portfolio in the round and think about what's happening in the stock market, more broadly, and what's happening in the portfolio, the underperformance is a product much more of the rather odd characteristics of this bull run in the stock market.'
He said the stock market rally was being led by a narrow bunch of stocks providing exposure to Chinese credit growth, while stocks deriving their revenues from the domestic UK economy were being shunned.
'In very simple terms, the stock market has decided that Asia, China is good, the UK is bad,' he said. 'I see that preference playingout in the stock market daily.'
UK domestic stocks have become a key focus for Woodford, after the manager overhauled his Equity Income fund in April to capitalise on what he saw as the value opportunity in the sector.
He acknowledged the temptation 'to take the easy option' and 'sell the UK cyclicals, and just hide in the group where everybody else is investing'.
But he argued that would be 'a betrayal of my investment principles' and 'entirely the wrong thing to do in terms of the medium- and long-term interests of our investors'.
'There's huge potential in the portfolio, huge undervaluation,' he said.
'It's a great portfolio, one that I own and want to own more of. The short-term performance is painful and is difficult, but it isn't a permanent loss of capital. And I can and I believe I will rebuild the performance and rebuild that capital that we've lost recently.'