Neil Woodford, manager of the £9.2bn CF Woodford Equity Income fund, has said the stockmarket has become very "narrowly-led" and "hysterical", as he described a "very painful" period for his fund's performance.
The veteran fund manager (pictured) apologised for the Equity Income fund's recent performance, which has fallen 7% in the last three months to 6 September, versus a 0.61% fall for the IA UK Equity Income sector and a similar decline for the FTSE All-Share, according to FE.
A number of Woodford's holdings have made the headlines over the summer period, with AstraZeneca down 16% in a day after suffering a major setback in one of its drug trials, while Provident Financial plummeted nearly 70% in one day after the company issued its second profit warning in three months, which the manager said was a "disproportionate" amount.
"It is an incredibly painful and difficult thing to have to navigate. I am very disappointed with the short-term performance and indeed, have been criticised for it," he said.
"I think I am right to be criticised. It has been a difficult period. And I am very sorry for the poor performance that we have delivered now since 2016.
"But in terms of what it means for me as a fund manager, it is very, very important that through a period like this that you maintain your investment discipline."
Woodford added the stock specific problems he has encountered are a reflection of the broader stockmarket.
"There is a temptation to focus on company specific issues, and certainly they have not helped," he said.
"But when I think about what has happening in the stockmarket more broadly, the underperformance is much more the product of the characteristics of this bull run in the stockmarket. It is a very narrowly-led market."
The manager pointed to the fact the market had bid up the prices of stocks which are exposed to Chinese credit.
Chinese credit growth has been very strong in the run up to the 19th party Congress in November, as Woodford said President Xi Jinping wanted to "reassert" his authority over the economy.
However, areas of the market such as domestic economic cyclicals, healthcare and small early stage enterprises, which are prevalent in Woodford's portfolio but have not been exposed to this "one dimensional" story in China, have not delivered strong results.
Woodford said: "In very simple terms, the stockmarket has decided that Asia, China is good, the UK is bad. It sounds very simple.
"And maybe it is an oversimplification. But I see that preference playing out in the stockmarket daily.
"The consensus view is playing out by bidding up stocks that give exposure to this sort of Asian and China credit growth story, and exiting out of anything that does not deliver that. And of course, parts of the market that do not deliver are the bits of the market where I am seeing a lot of value."
Turning to Provident Financial, which now makes up 4.1% of the portfolio following the share price fall, the manager blamed the stockmarket for overreacting to the profit warning.
"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.
"I think the stockmarket, yet again, has become hysterical and, yet again, has multiplied many times the impact of this problem in the home credit business."
However, Woodford stressed the importance of maintaining conviction and discipline in his investment process.
"I have never been a closet index manager. I have always taken strong views about where value is in the stockmarket.
"And I have for all of that period been taking big stakes in small companies and big stakes in big companies. And I am very happy to do that."
The manager continues to believe the portfolio is appropriately positioned and will eventually see a turnaround in performance.
He said: "There is huge potential in the portfolio, huge undervaluation. And i i'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 is not a permanent loss of capital. And I can and I believe I will rebuild the performance and rebuild that capital that we have lost recently."
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