New Woodford Fund

Ryan_Futuristics

It is a problem with China ... I've got two Chinese funds and I think they're both less than 50% invested in the Chinese market (despite much better valuations than Hong Kong, Taiwan, etc)

I missed most the Fidelity China story at the time, but I never worked out why a long-term UK fund manager was suddenly heading a Chinese fund ... The best managers do tend to be Chinese from my experience (needing that level of local knowledge)

I think Woodford knows the sector as well as anyone - although anyone would have their work cut out matching the returns of funds like Marlborough Micro-Cap ... Some suggest the fact he's looking for 50-100 holdings (many unlisted) could present quite a lot of work, keeping on top of things ... I'm always skeptical until I see something working - and in a way my positivity is more that I think it will be a good diversifier ... I was looking at investing more in private equity, but you're generally looking at nauseating fees and/or premiums

bowlhead99

Ryan_Futuristics wrote: »

I think Woodford knows the sector as well as anyone - although anyone would have their work cut out matching the returns of funds like Marlborough Micro-Cap ... Some suggest the fact he's looking for 50-100 holdings (many unlisted) could present quite a lot of work, keeping on top of things ...

If you look at Marlborough Microcap they have just over 250 positions in their holdings list on a £400m fund, and their Nanocap fund has almost 150 positions to deploy just £90m. So, while they will have some conviction on their top ten, top twenty, there is a lot of holdings which are essentially just padding and it's probably as much about what they leave out, than what they leave in.

Woodford is going to be higher conviction because some of the investments (more the early stage ones than the early growth ones) will be individually negotiated private deals, and the 50-100 grand total of holdings will include a whole bunch of mainstream largecap holdings - so the micro/nano/early holdings will be a lot fewer than how Marlborough are doing it.

With individually more material deals, but still a big pipeline of deals to evaluate, you're right he has his work cut out and I'm not sure we have enough evidence to say he "knows the sector as well as anyone" because it hasn't been his bread and butter really. It is just something he likes and should be able to turn his hand to because he knows UK equity well and is a smart cookie, but does he really know this subsector as well as anyone? I guess we'll find out!

... I was looking at investing more in private equity, but you're generally looking at nauseating fees and/or premiums

You're right about the big fees (management fees and performance fees) compared to the lower maintenance mainstream listed stuff. But if you like the concepts you can increase your PE exposure with broad fund-of-funds which typically sit on good discounts. Holdings like SEP, FPEO, PIN, HVPE, JPEL etc will all let you in for a discount which more than covers the high fee exposure because you get a pound of assets (albeit illiquid) for less than a pound of cash.

Of course, it's fair to say a lot of the returns in the last three years or so in the listed private equity sector have been driven more by discount narrowing than pure NAV growth and I guess you don't like overly broad sets of fund-of-fund holdings that function more like trackers - but it is perfectly possible to access PE without a premium unless it is a particular direct fund with particular holdings characteristics that you are seeking out.

Below link gives an average LPEQ discount for the sector plotted over time - 15-25% is not uncommon.
http://www.lpeq.com/Performanceandstatistics/Sectorstatistics/LPEPremiumDiscountover10years.aspx

http://www.lpeq.com/Performanceandstatistics/Sectorstatistics/LP!!!!!!!!!!vsSecondaryLPPricing.aspx

Borrowedtune

I just hope he doesn't take too much time away from managing his Income Fund.

bowlhead99

Borrowedtune wrote: »

I just hope he doesn't take too much time away from managing his Income Fund.

I guess it will pretty much run itself - if he had to watch it like a hawk he wouldn't ever get a holiday or sick day. He has a team of people and they're taking 0.75% or whatever times 4.5 billion pounds to give them the people and systems and infrastructure to manage it effectively. At Investco he had an income fund and a high income fund and the Edinburgh trust etc etc.

Woodford might still be 'hands on' but in running a largecap equity income fund he's surely more of a figurehead convincing big ticket investors to trust his firm, rather than selecting every individual buy and sell. He just needs to oversee the process, the general strategic thought.

le_loup

Right.

Finished reading the prospectus yesterday (what guff they have to put in to satisfy regulators!), found no surprises and made my mind up to put in for 1.7% of my total stock market investments.

If I lose the lot, that's about what I would normally lose on a bad market day; if it doubles in 10 years, it will still not be a large part of my money at high risk.

I'm really just giving a little support to what I think is a very good cause [who would equate giving money to Woodford was like charitable giving?]. I like the concept of trying to grow start-ups and I like the novelty of the charging structure. This is not to make me pots of cash, but if it does, then maybe I can give that to another good cause.

bowlhead99

If you're doing it outside a tax wrapper it's just like a charitable gift - making a chunky loss gets you a tax write off:) And if it's not a big amount no harm done.

The charging structure is fine for me (in terms of what I give the manager if fund does well). The novelty of it does present a potential structural problem in terms of manager motivation if they get heavily under their target or below the watermark:

They need to outperform 10% to get paid. Let's say they invest £100m, looking at where they need to be in 10 years (10% growth annualised on the 100m) they have a target of £260m for 2015. If they accidentally lose 50% in the next 3 years, they then have to turn £50m into £260m in the 7 following years to get back on track.

Achieving that target would present them with an uphill struggle of perhaps needing to deliver 27% compound growth for seven years straight before even taking a penny of reward. Difficult to motivate a team with those kind of targets. Hopefully their cash cow of the income fund is keeping the lights on, but zero revenue from an unquoted equities fund for most of a decade is not going to get you the sharpest minds to work on that fund for the best part of a decade with zero bonus potential in sight.

That's just an example but in the alternative investment space where performance fees are prevalent you do sometimes get these 'zombie' funds which such a slim chance of being winners that they just bobble along for a while with no leadership before liquidating all their unquoted assets in a firesale at big discounts to NAV.

So, a fee structure that's very palatable to investors may result in the manager coming back in a few years and saying 'sorry, we're going to need to recalibrate your expectations and our fees here, if you want us to recover these assets for you'. There are certainly examples of investment trusts that reset their watermarks in order to bring in new management and fix a problem.

I only mention this as 'novelty of charging structure' can be tricky to get to grips with and there are a few aspects to consider- many investors on this board will be familiar with trying to get their tracker fund OCF as low as possible and not have given thought to manager compensation other than 'fees are bad'.

berbatov10

Bowlhead99 have you ever considered becoming an 'advisor'? I am in a reasonably comfortable position and am considering putting £2-£k or next years ISA allowance into this fund

bowlhead99

berbatov10 wrote: »

Bowlhead99 have you ever considered becoming an 'advisor'?

Nah, as dealing with idiot customers in real life is frustrating whereas if you are on a web forum you can (try to) ignore the people you don't want to deal with...

I am in a reasonably comfortable position and am considering putting £2-£k or next years ISA allowance into this fund

£2k or next years ISA allowance is quite a difference, but the important thing is the "reasonably comfortable position" as a starter.

I can imagine for some, it being somewhat frustrating that people who are already better off can effectively get access to the opportunities to get even more better off, because they can afford something that's a decent opportunity but also 'a bit of a gamble' while people who are less well off get told to leave it well alone. Risk tolerance is one thing, risk capacity is another.

If you have both, and you like the small print, and you feel you're qualified to know whether you ought to like the small print... dive right in!

le_loup

bowlhead99 wrote: »

They need to outperform 10% to get paid. Let's say they invest £100m, looking at where they need to be in 10 years (10% growth annualised on the 100m) they have a target of £260m for 2015. If they accidentally lose 50% in the next 3 years, they then have to turn £50m into £260m in the 7 following years to get back on track.

Ah! But what you're missing is the "patient" part. If we accept that its patient capital they must expect patient fee payment!

le_loup

bowlhead99 wrote: »

on a web forum you can (try to) ignore the people you don't want to deal with...!

We have notice you failing in that respect - occasionally.;)