Woodford Concerns

Jonbvn

Thank you bowlhead99 for your written submission to the court

This being a discussion forum and given the situation I think I am allowed to make reasonable accusations, without the same level of proof I would require in court.

Sailtheworld

Looking at what a star manager invests in after they lose money rather than before is like locking the stable door after the horse has done one.

If anyone wants to be late for another party there's always Fundsmith.

AnotherJoe

I fundamentally disagree regards Fs. There's a massive difference between the solid companies Fs has invested in (sticking to it's actual aim) vs the calamitous / hapless / expensive or outright fraudulent companies that W bought that either didn't follow the philosophy (start ups / unlisted in an income fund ? ) or were terrible choices if they did fit the aim of the fund.

bowlhead99

AnotherJoe wrote: »

didn't follow the philosophy (start ups / unlisted in an income fund ? ) or were terrible choices if they did fit the aim of the fund.

'follow the philosophy' does not mean that if income is in the name of the fund, everything must produce a high level of income. The fund needs to produce income but it also needs to grow. Some holdings can yield 6%, others 3%, others 0%, in pursuit of the objective.

From the 2016 version of the prospectus,

CF_Woodford_Equity_Income_Investment_Objective_and_Policy wrote:

The aim of this fund is to provide a reasonable level of income together with capital growth. This will be achieved investing primarily in UK listed companies. The fund may also invest in unlisted companies and overseas entities. The fund may also invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits...

Unfortunately, being a contrarian means doing what other people are not doing, but it does make you look stupid when those other people get it right, and saying that something was in 'pursuit of the objective' will score you 0 out of 10 with the people who need you to definitely achieve the objective.

Moe_The_Bartender

Contrast this with the FS position.

EQUITY FUND AIM

The Company will invest in equities on a global basis. The Company's approach is to be a long-term investor in its chosen stocks. It will not adopt short-term trading strategies.

The Company has stringent investment criteria which the ACD and Fundsmith Investment Services Limited as investment manager adheres to in selecting securities for the Company's investment portfolio. These criteria aim to ensure that the Company invests in:

high quality businesses that can sustain a high return on operating capital employed;
businesses whose advantages are difficult to replicate;
businesses which do not require significant leverage to generate returns;
businesses with a high degree of certainty of growth from reinvestment of their cash flows at high rates of return;
businesses that are resilient to change, particularly technological innovation;
businesses whose valuation is considered by the Company to be attractive.
Investors should be aware that the application of these investment criteria significantly limits the number of potential investments for the Company's portfolio. It is envisaged that the investment portfolio of the Company will be concentrated, generally comprising between 20 and 30 stocks.

The Company will not invest in derivatives and will not hedge any currency exposure arising from within the operations of an investee business nor from the holding of an investment denominated in a currency other than sterling.

Moe_The_Bartender

And if you think it can’t get worse, it just did.

https://www.reuters.com/article/woodford-inv-suspension-wpct/update-1-woodford-listed-fund-hits-record-low-on-valuation-cut-idUSL5N25J1QD

Shares in Eddie Stobart Logistics suspended - Woodford owns 23% and Industrial Heat being written down.

Sailtheworld

AnotherJoe wrote: »

I fundamentally disagree regards Fs. There's a massive difference between the solid companies Fs has invested in (sticking to it's actual aim) vs the calamitous / hapless / expensive or outright fraudulent companies that W bought that either didn't follow the philosophy (start ups / unlisted in an income fund ? ) or were terrible choices if they did fit the aim of the fund.

Fundsmith will likely go the same way as in under-perform rather than explode because that's what most funds do and its difficult to filter them out ahead of time. If you look on their site they've got the classic mug punter pitch of measuring their performance (19.7% year to end July) against the MSCI World Index (12.5% year to end July). The cheeky beggars say 'The MSCI World Index is a generic portfolio of global equities across all sectors and, as such, is a fair comparison given the Company is also global and sector agnostic'.

Fair comparison my a**e. Fundsmith are in a completely different risk league.

Woodford is going to get fined or punished in some way. He's got to be - you can't have such a high profile demonstration of the difficulties of picking an outperforming fund manager so mug punters need to assured there must be a fraud or other evil at play.

bowlhead99

Moe_The_Bartender wrote: »

Contrast this with the FS position.

The aim/objective for WEIF is to "to provide a reasonable level of income together with capital growth."

While, per the prospectus, the objective of FS is "to achieve long term growth in value"

Really the point of my posting the extract from the WEIF prospectus was simply to note that they do not say their sole aim is income generation, as such it should not be surprising if they invest in something for its value growth potential and unlisted or early-stage / development companies which are not cash-generative are not off the table.

The FS fund does have a much longer and specific investment policy in its prospectus than WEIF and most other OEICs, and many customers will like that, albeit some of it is quite subjective (e.g. "businesses with a high degree of certainty of growth from reinvestment of their cash flows at high rates of return; businesses whose valuation is considered by the Company to be attractive.")

Prism

Sailtheworld wrote: »

Fundsmith will likely go the same way as in under-perform rather than explode because that's what most funds do and its difficult to filter them out ahead of time. If you look on their site they've got the classic mug punter pitch of measuring their performance (19.7% year to end July) against the MSCI World Index (12.5% year to end July). The cheeky beggars say 'The MSCI World Index is a generic portfolio of global equities across all sectors and, as such, is a fair comparison given the Company is also global and sector agnostic'.

I can't think of a better benchmark to compare against. A global equities fund vs the MSCI world index is pretty accurate.

Fair comparison my a**e. Fundsmith are in a completely different risk league.

Agreed, Fundsmith is lower risk than the MCSI index

itwasntme001

It certainly has been a great performance from the likes of fundsmith. Well done to those who have a good chunk of their portfolio with them! Out of the overall close to 7 figure amount i manage for my family, there is just over 20% invested in fundsmith and smithson. So sure i wish i had more (although i do also have other funds like lindsell train and a number of baillie funds which have also done very well) but i just dont think i can sleep at night having a massively concentrated close to 7 figure sum in one fund manager.


Fundsmith has a concentrated portfolio in defensive growth names in sectors such as healthcare and tech. Money has been piling into these sectors given the backdrop in weak economic fundamentals. What i am waiting to see is if we do get a large burst of growth in the global economy, would fundsmith outperform? Perhaps money will flow out of the defensive names and into more cyclicals which may mean an underperformance of fundsmith? I obviously do not wish this to happen but i am not blind to think it will never happen, perhaps even for long periods of time.



People also tend to confuse vol with risk. They are not the same thing. Fundsmith has been characterized as being relatively low vol which reflects the defensive nature against the slowing economic backdrop. However that is not to say that is lower risk then say a vanguard global fund. The big difference is that one relies on the fund manager to continue managing the portfolio well whereas the other has no requirement to do so. Woodford is perhaps the most extreme case of this risk being realized. We have no idea whether fundsmith will continue to outperform. It is an academic question how you would quantify this risk, but in any case the risk is clearly there.


So buying into fundsmith or any managed fund is investing in the fund management investment process. You are not investing only on the current holdings but also of all future decisions the fund makes, until you sell the fund. I personally made the decision to hold about 60% active (including some single stock holdings which have actually outperformed fundsmith) and the rest passive. Of the active funds i decided not to just hold one or two but a few that i took the view of being well run (mainly recent fund performance and their investment process).


Who knows how they will perform into the future but I am happy that i am not overly reliant on any one fund manager to outperform, especially since I am looking to hold for many decades.