You would have been hard pressed to miss the news that the Woodford Equity Income Fund is now suspended for dealing. It has been covered extensively in the media, with a sideshow focusing on the spectacular fall from grace of former ‘star’ fund manager Neil Woodford. Mr Woodford has been a successful “active” fund manager for many years and built up a loyal following of corporate and private investors who were confident that he would continue to deliver positive returns. His latest fund reached £10 billion. Recently, performance has not matched expectations and some big investors have withdrawn their money over a short period. Assets have to be sold to meet such redemptions, and the ability of Mr Woodford to sell down holdings to give investors their money back has been impaired. The fund value fell to £4 billion.
To avoid having to sell positions at any price, a decision was taken to suspend dealing in the fund. This means that investors can’t buy or sell their holdings until the suspension is lifted. The fund manager has to act in the interests of all investors, not just those at the front of the queue to exit. Through the suspension, the Woodford team, in theory, now have the ability to sell the holdings at more realistic prices. It’s a worrying and confusing time for investors that include local authorities and pensioners’ life savings.
We are dismayed at the chain of events; it’s not good to have such high profile problems undermining investor confidence. We aren’t surprised though. Time and again, research tells us that no one can consistently beat the market, not even Mr Woodford, and being in the funds that outperform the market in any given period is a lottery. Active fund managers don’t have special powers or skills in our opinion or that of researchers who found that less than 1% of fund managers in a large sample are truly skilled. In years gone by, meeting with company executives ahead of share purchase by a fund may have given a small market advantage. However, in our fast moving digital world, information is widely and instantly shared and such perceived advantages have been extinguished.
None of our clients are invested in Mr Woodford’s funds. Our view remains unchanged; which is that for most private investors, after thorough appraisal of appetite, need and capacity for risk, investment via low cost funds that track world markets will more reliably deliver the longer term returns that we seek.