In recent weeks many of the headlines in the financial press have been about Neil Woodford and his flagship Equity Income Fund. The problem, for those that are unaware, is investors wanting to exit the fund but not being allowed to, due liquidity issues. The fund, valued in 2017 at £10.2bn, is now £3.7bn in value. Investors in the Woodford funds are companies, pension funds and individual investors.
It is a timely reminder that investing money is comparatively easy, it’s knowing what to do after you have invested it, that is the hard part! People who may ‘self invest’ need to recognise it’s better to understand investment restrictions before investing, not after. However to me, it’s also a good example of the dangers of solely relying on financial journalism to make important decisions.
Background to Neil Woodford: Probably the highest profile fund manager in the UK. Built his reputation as a fund manager with Invesco. Follows a contrarian Investment Style – not following the herd. Called the fall of the dot.com economy. As a result his profile increased as did his assets under management. He was the go-to fund manager for opinion. When he spoke, headlines were written & investors took note. In October 2013, he left Invesco -set up his own investment company. The Equity Income Fund launched in June 2014. In the first 12 months the fund returned 18%. Perhaps expectations were unrealistic. His management assumed an orderly and swift Brexit, returns started falling and investors started to withdraw money; some of them large institutions.
Perhaps an underlying problem not just affecting this investment is the ‘implied advice’ that often comes from financial journalism, the apparent lack of contrition when it goes wrong and the ability to be experts with hindsight.
Below is an excerpt from a BBC News item in June 2015 and another quite different in tone, also from the BBC in June 2019.
Neil Woodford: The man who can’t stop making money. – BBC Website June 2015
This weekend hundreds of thousands of small investors – many of them pensioners, will be saluting Britain’s very own Warren Buffett. Since launch of his own fund, he has delighted investors with 18% return on their cash. By contrast the average share on the London stock exchange had risen by just 2%.
“He’s arguably the best fund manager of his generation”. He says his aim is to deliver “high single digit returns” every year, averaged out over three to five years.
To get a true measure of the man, Woodford fans say you need to take into account his record at Invesco Perpetual. Anyone investing a pension fund of £10,000 with him 27 years ago would now have £309,000. Had they invested across the stock market as a whole, they would only have £117,000.
What went Wrong for Woodford and why it matters. – BBC Website June 2019
Mr Woodford’s “Star” status came from 25 years of investing. Investors had piled into the fund. Some financial advisers had suggested it to their clients. Its performance didn’t live up to the hype. What lessons are there for investors? “Woodford was promoted as some kind of superstar and that is clearly not the case.
To me this is a good example of problematic journalism; encouraging people to make decisions that they later regret, perhaps rather than taking advice. Of course there are ways to avoid or mitigate such problems, such as diversification, limiting exposure to single holdings and taking active investment advice. I will explore some of these in more detail next month.
Author: Phil James, Grosvenor Consultancy Ltd
There are advantages and disadvantages to using all of these strategies and they depend on individual circumstances so don’t take action without seeking competent advice. Tax rules, rates and allowances are all subject to change. The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise, you may not get back the full amount you invested and past performance is no guide to future performance.
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