Neil Woodford: Blame the markets for the poor performance

The fund's performance is the result of a "narrow fixation" on global growth stocks, the fund manager says.

Between its suspension in early June and late August, Woodford Equity Income lost investors 11.5%. Meanwhile, the fund's benchmark, the FTSE All Share Total Return index was marginally up, by 1.52%.

Over the past three years the fund has lost just under 35%. In contrast, the average fund in the Investment Association's UK all companies sector has returned 17%.

This poor performance, however, is the result of a "narrow fixation" on global growth stocks, argues Neil Woodford in his fund's most recent interim manager's report, published on the firm's website a couple of days ago.

According to Woodford current conditions have "all the hallmarks of a momentum-driven market." He says:

"Momentum investing involves buying assets when they have risen in price and selling assets when the price has fallen, with little or no regard paid to the fundamental value of those assets."

In the UK, he says this momentum approach has "manifested itself in a narrow fixation on businesses that are seen as beneficiaries of a reflationary global growth scenario that we simply did not (and do not) believe in."

He continues: "The Fund has very little exposure to these parts of the market because of macroeconomic concerns and on valuation grounds.

"This lack of exposure to sectors such as basic materials, oil & gas, consumer goods and large financial groups such as HSBC (LSE:HSBA), explains a significant proportion of the fund's underperformance."

Under such market conditions, Woodford argues, a fund with his "disciplined, valuation-oriented investment approach" is bound to underperform. He adds that markets are currently rewarding the "anti-thesis of our fundamentally-anchored investment approach".

Woodford has long made the case for domestically focused stocks, which he sees are strong value opportunities due to what he believes are over-egged Brexit fears. He has previously called UK stocks the best investment opportunity in 30 years.

This sort of portfolio, however, has been particularly "unhelpful" during the period, Woodford notes, with Brexit concerns continuing to weigh on the price of UK facing businesses. "This explains a further part of the portfolio's underperformance during the period, with negative contributions from the likes of Provident Financial (LSE:PFG), Redde (LSE:REDD) and Eddie Stobart Logistics (LSE:ESL)," he says.

Woodford also acknowledged the contribution of some of his healthcare stock picks to his fund's poor performance, including Autolus, Cicassia and Mereo Biopharma. Despite these companies having strong fundamentals, the market, he claims, "remains hostile towards this sort of investment opportunity."

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.