Fund buyers have welcomed the March launch of Woodford Investment Management's Income Focus fund, describing the higher yield targets and lack of geographical restraints as appealing, but they have also questioned where a global income fund with a UK core could fit within asset allocation models.
Details of the new fund emerged late yesterday with the group confirming the CF Woodford Income Focus fund, its second open-ended vehicle, will be launched in March 2017.
The fund will aim to deliver what one buyer described as "punchy" income of 5p per share in its first full calendar year in 2018, after which fund manager Neil Woodford (pictured) will aim to deliver modest sustainable growth in per share income over a five-year rolling period.
What we want from new Woodford fund
Investors should be aware the fund will not target a specific yield and there is no guarantee that any specific level of yield or income will be achieved over any given time period.
However, given the fund's clear focus on income generation, it is understood investors should expect the fund to yield at least 20% more than the income delivered by the FTSE All-Share index over a rolling five-year period.
In addition, in a move to differentiate the fund from the existing £9.4bn Equity Income fund, Income Focus will not be able to invest in unquoted companies and will not be constrained by geographic region.
Fund buyers have said they will need to take a closer look at the fund and its overlap with Woodford's existing Equity Income portfolio before making a decision about whether to invest, but many are interested in its potential to invest more globally.
Stewart Smith, investment research manager at Rayner Spencer Mills, said: "The interesting part is the lack of regional constraints and how much [Woodford] will use that. Most of his overseas exposure is likely to be in Europe or the US, but with the core remaining in UK equities."
Woodford launches offshore feeder fund for £9.6bn Equity Income
Peter Lowman, CIO at Investment Quorum, said the fund is likely to be more "vanilla" than the existing UK income mandate but with more overseas exposure.
"It is likely to be more like the Higher Income fund he ran at Invesco Perpetual, but Neil is likely to shop around in the overseas market and pick up companies like Johnson and Johnson, which is a very good dividend payer. More overseas companies are now paying dividends and using this can also offset sterling exposure."
However, buyers also expressed concerns investors may struggle to fit this kind of mandate into existing portfolios. Adrian Lowcock, investment director at Architas, said investors looking for global income do not necessarily want UK exposure too.
"This looks like it will be a global fund with a UK focus. The issue for a lot of investors is they already have a lot of UK equity income exposure so by having a UK weighting in a global fund, do they want that diversification? Most global equity income funds go global and do not have UK exposure," he said.
Smith added: "I think it is going to be difficult for investors to pigeon-hole this fund in terms of asset allocation but it will still do well due to Woodford's track record."
Given its lack of regional constraints, the new fund's peer group is not yet clear. Gavin Haynes, managing director at Whitechurch Securities, said: "It definitely will not sit in a UK sector, it would be Global Equity Income or Specialist due to the unconstrained nature."
Some buyers have also questioned whether the manager will be able to hit the yield targets he has set himself over the longer term.
Lowcock said: "A global income fund yielding 5% is quite high - if you want the growth you do not get such high yields and that may be where the UK weighting may help as there are some very attractive large caps."
Darius McDermott, managing director at Chelsea Financial Services, said: "This fund has targeted a higher yield and I want them to make efforts to keep the yield high - certainly above 4%. This is the magic number for income investors given how poor rates are on cash at the moment."
Meanwhile Mark Dampier, head of investment research at Hargreaves Lansdown, added: "From a launch price of 100p, Woodford is aiming to provide a pretty punchy 5p income in 2018 and this will limit the opportunity for growth, so for me this fund will be very much for those seeking and prioritising income over growth. This contrasts to the Woodford Equity Income which is more growth-orientated."
