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Woodford takes steps to greater transparency on funds

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One of the most respected fund managers in the country, Neil Woodford’s eponymous firm, Woodford Investment Management (Woodford), plans to absorb research costs, thereby benefiting investors, in the CF Woodford Equity Income Fund. 

The fast growing asset manager says that this forms part of a new initiative to be open and transparent on all the costs associated with running an actively managed investment fund.
 
The firm writes that from April 1, research costs will be met by the company, Woodford, rather than being deducted from the CF Woodford Equity Income Fund as part of the transaction costs. Research costs are, however, just a small part of the charges and costs that are deducted from a fund’s return.
 
Woodford believes that investors should not only be aware of all these costs but they should also be able to see the breakdown and total, in an easy-to-find and easy-to-read way. In a bid to raise transparency, the firm is disclosing all costs associated with the CF Woodford Equity Income Fund on a single page on its website, with plans to update the figures each month on a rolling 12-month basis.
 
Currently, the main way investors compare UCITS fund costs is to look at the Ongoing Charge Figure (OCF). This is the fee that’s quoted on fund factsheets and other investor information. However, Woodford writes that the OCF doesn’t reflect other necessary transaction costs that are deducted from a UCITS fund’s return and therefore, ultimately paid by investors. For example, it doesn’t include the costs of trading shares, commissions paid to brokers, the bid-offer spread nor Stamp Duty.
 
“Total costs are influenced by many factors including inflows and outflows. They are also, in part, driven by portfolio turnover rate, which is the measure of how frequently a fund manager buys and sells assets within a fund. They can vary substantially between funds depending on strategy and assets it invests in.
 
“Costs also vary from year to year: in some years, market conditions may prompt the manager to sell or buy shares in a particular sector, or region pushing up these transaction costs. In 2015, the portfolio turnover rate for the CF Woodford Equity Income Fund was 15.3 per cent using SEC methodology.”

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