Woodford Concerns

poppy10_2

dividendhero wrote: »

In theory it's possible for an open ended fund to go bust, but highly unlikely. Worst case scenario for a fund is that it's liquidated and the proceeds passed to investors. In the case of large caps like Diageo the effect will be minimal, but the sale of a large number of shares in small cap companies will depress their prices..

Look up the Arch Cru and Connaught Income cases
https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06008#fullreport
Some remarkable similarities to Woodford's case - straying in to highly speculative illiquid assets, and IFAs failing to monitor or do due diligence to spot that the investment manager was going rogue.

Woodford is almost exclusively invested in unquoted and small cap stocks (I think he's only got three FTSE 100 companies in his whole portfolio, and at low quantities). He can't sell out of these without collapsing the share price, even if he is able to do so slowly over the next six months. Many of the companies have been on extended life support from him and would have collapsed into insolvency long ago without his backing - nobody else is going to want to take them off his hands.
Investors will be lucky to recoup 70% of their investments in this fund

dividendhero

fun4everyone wrote: »

Massive banner with a link to a statement is the first thing I see on Woodfords website, and has been since the news broke.

You're correct - google took me a sub page, rather home page. Big statement on homepage

itwasntme001

poppy10 wrote: »

Look up the Arch Cru and Connaught Income cases
https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06008#fullreport
Some remarkable similarities to Woodford's case - straying in to highly speculative illiquid assets, and IFAs failing to monitor or do due diligence to spot that the investment manager was going rogue.

Woodford is almost exclusively invested in unquoted and small cap stocks (I think he's only got three FTSE 100 companies in his whole portfolio, and at low quantities). He can't sell out of these without collapsing the share price, even if he is able to do so slowly over the next six months. Many of the companies have been on extended life support from him and would have collapsed into insolvency long ago without his backing - nobody else is going to want to take them off his hands.
Investors will be lucky to recoup 70% of their investments in this fund

I imagine he was under pressure for being an income fund seeing as growth had been outperforming so he decided to take huge punts, which then has led to his downfall. He deserves to have his name tarnished for good. His career should hopefully be over now and i am glad of it.

Malthusian

poppy10 wrote: »

It's funny in a way, but deadly serious for Hargreaves Landsown. When funds have blown up in the past, IFAs and others have been held liable for mis-selling and forced to pay massive amounts of compensation.

That's because IFAs give regulated, personalised advice. Buy-list marketing is not advice.

As a platform HL had huge sway, and they kept Woodford in their top 50 list despite knowing his fund was crap purely because of the massive fees they were creaming off. You can see in archives of their recommendation page that they were describing his fund as a "defensive" one.

That's as good as the case against HL gets. In fact if I was an ambulance chaser in the US, where class action suits are possible, I might be licking my lips. But you say this was from an archive. What did it say after the allocation to unlisted cold fusion companies got ramped up?

Publically available portfolio information showed that it was nearly 20% invested in highly speculative illiquid early stage companies, had a 10% overdraft (unheard of in an open ended fund)

Rather doubt it as OEICs are allowed by legislation to have 10% overdrafts to make day-to-day buying and selling easier (see the FCA handbook) - it's not the same as gearing, which generally refers to borrow money to invest long-term.

There is absolutely no way HL should have been recommending this to naive investors.

They didn't. A list of 50 funds is not a recommendation. If you choose one fund out of that 50 and bash all the wine gums on it that's your problem.

Not good enough and they will surely be held liable for mis-selling in due course

Absolutely no chance.

masonic

fun4everyone wrote: »

My own personal opinion on what that means is that it is not good for the WPC trust. Unwinding what has to be unwound of the joint holdings will cause drops for all the funds. WEIF might be a forced seller of WPCT. I can see WPCT opening massively lower tomorrow.

Is WPCT geared? I believe it is. The bank might get worried now and start to call in loans. Of course, I do not know how it works in reality for WPCT. They would have to sell stuff to repay the loan if there is one that's called in.

If I remember correctly, WPCT cannot charge a fee unless it has made 10% annualised. It's so far off that I can't see it ever getting there. My opinion is eventually it will be wound up because of this. WEIF dying could accelerate that happening.

At the very least there is a massive conflict of interests looming. Action taken to protect one group of investors will likely be to the detriment of the other group.

Gearing of WPCT is about 15% and it seems unlikely this borrowing would be adversely impacted as the lender will rank ahead of investors should the trust be wound up. The lender might start to get worried if the NAV falls significantly, but this can't now happen as a result of people fleeing for the exits - trading on the OEIC, which held some of the underlying companies directly, has been halted, and panic selling WPCT shares does not result in trading of the underlying holdings, just a widening of the discount to NAV.

There could be a nice buying opportunity coming up if anyone is feeling brave...

elona

I just got an e mail from HL telling me the fund has been suspended.

londoninvestor

masonic wrote: »

Gearing of WPCT is about 15% and it seems unlikely this borrowing would be adversely impacted as the lender will rank ahead of investors should the trust be wound up.

Given the undesirability of trying to unload the whole portfolio, engaging a new investment manager might be more likely than a winding up - either if Woodford decides to jack in the whole game now, or if the board gets assertive. [Not sure if they have shown a track record of that though, especially in the acquisition by WPCT of some of WEIF's unquoted assets, which supposedly was a win-win for both sides.]

The fees would have to be renegotiated though because no one is going to do it for the current arrangement!

Scarpacci

How fitting this happens on a day when Kier Group, a company that Woodford owns 20% of(!), fell by 40%. It was yet another sign, if one was needed, that the problem isn't what he's not been buying, it's what he has bought (usually by the bucket load).

It's been fascinating to hear following one corporate disaster after another, that Neil Woodford believes the problem is simply that Mr. Market is overvaluing the likes of Unilever or Diageo and that he will one day be proved right. It has nothing to do, apparently, with what that he has bought instead. And typically bought with large stakes in the companies.

He has repeatedly ignored the fact that companies he own have suspended dividends, been forced to make rights issues, etc. That's not just because Mr. Market prefers the shiny FAANG stocks or the consumer staples. Some of his holdings have been failing at the corporate level.

People often mentioned that he was criticized in the late '90s and early 2000s for relative underperformance from ignoring frothy elements of the market. But were the companies he was buying at that time failing, as so often his holdings seem to have done, or merely lowly-rated? Following the corporate news in this country lately, anytime I saw a headline about a rights issue or a 40/50% fall in one day, I knew to look and see whether Woodford owned it. And he usually did.

Too many people seemed to accept his notion that this was just a question of relative performance. He was avoiding things that have been going up and up, which hurts in the short-term, but he could one day be proved right. I'm sure at some point in the future Reckitt or Nestle, Microsoft or PayPal will indeed fall in price and/or be valued less highly. But that will be no help if what he has bought has gone to zero or lost most of its value.

I don't know if he always considered himself a "value investor" in the old sense of the word, but he seems to have believed that the margin of safety comes from the price you pay, not the qualities of the underlying the business. To hear him speak, the biggest danger to investors right now is people might wake up tomorrow and decide (rightly in his view) that Unilever should trade at 10x cash flow and not 20x. Alas, I think he overlooked the more imminent risk that the businesses he was buying might not make money or even be around next year. What are the chances the Procter & Gambles of this world won't make money next year?

Now, mathematically, it's right to say what you don't own can hurt you as much as what you do own when it comes to relative performance. But I would take the view that what you do own and how it can hurt you is more important. It's one thing to be hurt by not owning something that's going up, it's a whole other thing to be hurt by the things you do own blowing up in your face.

dunstonh

Some remarkable similarities to Woodford's case - straying in to highly speculative illiquid assets, and IFAs failing to monitor or do due diligence to spot that the investment manager was going rogue.

Arch Cru actually had more DIY investors than advised. I remember posting on this forum months before it closed and failed that no IFA should be recommending it because of the high quantity of known illiquid assets. So, there is a lot of similarities. Except Woodford is much much bigger and used even more by DIY investors.

In 2017, the due diligence company I use said not to recommend Woodford Income as it "....has the long tail of illiquid unquoted companies, which we believe are not consistent with the aims of an income-focused fund.". It said that Woodford Income Focus was more suitable for those that had an attachment to Woodford. Although they quickly changed that to a sell.

I believe similar removals took place across a number of the adviser due diligence companies. However, on the DIY side we need to remember that they operate marketing lists. They are very good at wrapping it up as approved funds but they are nothing more than marketing tie-ups.

If RDR and MiFIDII had not taken place, I suspect many IFA lists would still have had Woodford on there. So, perhaps this is an example of the benefits of RDR/MiFIDII when it comes to advice.

[Deleted User]

https://www.zerohedge.com/news/2019-06-03/it-begins-multi-billion-hedge-fund-blocks-redemptions


Wow!