Bill Jamieson: Woodford warning of doom '“ yet fully invested

When Britain's best-known investment manager warns that stock markets are in bubble territory it's time to pay attention '“ if you're not already sitting up and taking notice after similar warnings in recent months.

Step forward Neil Woodford, whose own funds have been battered in the past year. “Ten years on from the global financial crisis”, he believes, “We are witnessing the product of the biggest monetary policy experiment in history.

“Investors have forgotten about risk and this is playing out in inflated asset prices and inflated valuations. Whether it’s Bitcoin going through $10,000, European junk bonds yielding less than US treasuries, historic low levels of volatility or triple-leveraged ETFs attracting gigantic inflows – there are so many lights flashing red that I am losing count.”

The fund manager guru has not been without his own problems. Profit warnings and trading problems at companies such as Capita and Provident Financial where Woodford was heavily invested resulted in his widely held Woodford Income fund sinking towards the bottom of its peer group, returning just 2 per cent versus the peer group average of 11.5 per cent. He warns of the excesses of the dot.com era and the fancy valuations placed on high tech stocks, preferring, he says, shares in well established ‘old economy’ companies: the value approach.

Yet his funds remain fairly fully invested – he has not taken the Personal Assets Trust route of heavy weightings in fixed interest, US government index linked bonds and gold. And the giant £8 billion CF Woodford Equity Income fund has, as its fourth largest holding, a Nasdaq listed biotech company called Prothena. This, as the Financial Times Lex column remarked at the weekend, has a history of losses and almost no revenues but is nonetheless valued at $2.5 billion.

It is also the fourth largest holding in Woodford’s Patient Capital Investment Trust where it accounts for 15 per cent of a portfolio whose top ten holdings also feature five unquoted stocks. CF Woodford Equity Income, meanwhile, retains chunky holdings in Lloyds Banking Group, Legal & General and housebuilder Barratt. Let’s hope the feared stock market shakedown does not extend to bio tech companies, unquoteds, housebuilders, insurers and, oh, the banks.

ASL’s trendy new trust

Those who feared the merger of Aberdeen Asset Management and Standard Life would result in more me-too middle-of-the-road unit trusts will be heartened by news that the combined group’s first product launch is a specialist investment trust. If you can get your mouth round it, it’s called the Aberdeen Standard European Logistics Income plc.

It will specialise in the explosion of e-commerce across Europe and invest in related logistics businesses such as warehouses and distribution centres. The group plans to raise £250 million from the initial share offering. Its attraction for retail investors will be the prospective annual “distribution yield” of 5.5 per cent and a target total return of 7.5 per cent a year.

The management team will be based in Amsterdam. And it is decidedly “on trend” with targeted investments in European logistic properties such as large ultra-modern warehouses and local “last mile” distribution centres. There are caveats: this field may already be crowded – existing real estate investment trusts to the fore; many of these centres may be developed by retail trade conglomerates; there may be currency risk should sterling snap back against the euro. That said, it’s hard to think of a business sector that matches this hot growth potential: e-commerce accounts for 15 per cent of retail sales in Britain but only 8 per cent in continental Europe.

Moving down the risk curve

Last week I wrote of how I submitted myself to an online risk assessment from wealth management firm Investec. There were more than 17 searching questions. By the end I was in an existential fog. Who was I? Did I know myself? The result was a score that still showed me at the amber-warning end of the risk spectrum. I have set in motion a reduction in equity exposure and a shift within the equity class towards more diversified funds and trusts, with a modest move towards overseas markets.

Too little, too late? Too much, too soon? If only anybody knew – I would then be filing next week from my villa on Seven Mile Beach, Grand Cayman, watching the luxury yacht shimmering in the heat and bobbing gently at anchor. Dream on.