Woodford Concerns

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.

MaxiRobriguez

itwasntme001 wrote: »

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.

Vol adds a risk for those people who like making, or need to make, decisions. A steady price is easy to ignore, one which is rapidly going up and down tends to induce such responses like "should I buy more now it's getting some traction" or "should I sell now its possibly overvalued" or "do I buy more now its dropped 10%" or "do I sell it all in case it tanks further" - all of these things distract from previously considered plans so unless you know you will ignore noise, volatility can results in sub-par choices being made.

Prism

itwasntme001 wrote: »

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.

I agree that in a full blown economic surge (fuel, materials, finance, property etc) Fundsmith would not out perform like it has and would likely track around the index. I don't think it would all be bad news as the stocks are picked to do well in all conditions - but we shall have to wait to see. The key point is that Fundsmith (like Lindsell Train) is designed to be relatively defensive rather then all out growth. Its possible that some of those defensive stocks are too expensive and will fall just as heavily during a crash but others in the fund I think are still pretty reasonably priced (Pepsi, PM, Unilever, J&J)

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.

Volatility is certainly a risk and becoming more important to me at least as I get closer to possible withdrawal times. Its especially important during downturns or crashes. Its one of the easier risks to quantify. Other risks might include company failure which the limited holdings would make worse or the fund moving away from its principles (like Woodford). I have seen no sign of those last two yet.

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).

Similar to me although I am pretty low on passive funds at the moment.

seacaitch

itwasntme001 wrote: »

i just dont think i can sleep at night having a massively concentrated close to 7 figure sum in one fund manager.

Speaking generally...

One way to approach these things is to behave as if you have a fiduciary duty to those relying or benefiting from the portfolio (even if this happens to be yourself...).

The intention would be to ensure that someone in the future reviewing your past investment decisions would be able to judge that you acted prudently.

In other words, use hindsight not to say "if I only I'd done this I'd have made X% more", but to confirm instead that you kept to a well constructed plan and avoided any reckless behaviour that could, if events had turned out differently, have proven very damaging.

ie. remembering that key to successful long term investing is avoiding making really big mistakes rather than always be aiming to shoot the lights out.

Moe_The_Bartender

Some very good points above. My investments in Fundsmith and Lindsell Train have put me in the very fortunate position where I no longer need to worry about growth and can focus on wealth preservation. They both continue to account for a significant chunk of my portfolio because I believe that the businesses in which they invest have great defensive qualities. If other funds begin to outperform them, it doesn’t mean that I would sell.

itwasntme001

If you look at arguably the greatest investor of all time, Warren Buffet, even he underperforms the market at times. He obviously has done very well over many decades compared to a broad US stock index (presumably his benchmark) but over the last 5 years he has pretty much matched the US stock market. Fundsmith only has 10 years of track record for his fund so it is very early to tell if he really is one of the greatest but he certainly has done very well compared to most fund managers in this relatively short history of fund performance.


The people who have done very well out of fundsmith are those looking to cash out soon i.e. retirees. Those who are buying his fund at a relatively young age and have many decades for it to grow will be the ones carrying a lot of risk in terms of the fund decisions. We obviously shall see what happens, but I would not be surprised to see fundsmith underperform at some point and quite significantly at that.