Woodford Concerns

talexuser

Agile01 wrote: »

Just trying to understand why investors didn’t had any concerns after 2 years when fund was launched.
Was underlying holding was completely different than what is it now?

Which fund do you mean? For the Income fund I jumped after it lost 10% and pocketed a gain of 30% in 3 years, and at least another poster did the same earlier in the thread. Some big holdings were just turning into poor picks.

I cannot understand how HL continued to support it after it became clear it would never be able to recoup the losses to be in top quarter 5 year figures and other intermediaries were giving sell notices. HL were effectively saying ignore much better performing funds and hope that somehow a normal income fund will magically outperform better income funds by eventual huge stock price increases rather than the dividends all were getting anyway.

For the Patient Capital, that was too hairy for me and would need a really long term punt, expecting a lot even in the first five years would be unrealistic. We will never know now, a distressed fire sale is unlikely to be in existing investors interest, but the sharks picking the bones at rock bottom prices may well have a bit of luck eventually.

Agile01

Yes, I meant Woodford equity income fund

bowlhead99

talexuser wrote: »

I cannot understand how HL continued to support it after it became clear it would never be able to recoup the losses to be in top quarter 5 year figures

One can understand a rationale for a 'some of our best ideas' portfolio as including (a) funds that offer lower fees than their peers, and (b) funds that you think have the potential to give a good performance from here.

It is pretty strange logic to exclude a fund just because it won't appear in the top quartile five years until a previous loss has washed out of the back end of the chart. If you buy today, you are not buying the performance that already happened in the past, and that historic loss isn't yours. It's the 'from here' that counts.

This is not to say WEIF has been a good choice. Of course it hasn't, and we know the real driver of what goes into the promoted funds list is the discounts that the managers are willing to offer to platforms with the hope/expectation of receiving a certain level of business being put their way from the platform's customers.

But the idea of 'better not put this in the list because a recent loss will stop it topping the charts for a few years' is silly.

There are some posters here who do not like to see any red in their portfolio and will jump ship to get rid of such holdings, and always want to be able to say their holdings are in the top quartile of x-years performance so that people think they must be canny investors even though they've only held the fund for the last five minutes of that longer-term performance.

That attitude doesn't make sense to me. I don't want to buy something just because it made money before I bought it. I want to buy something that will make money while I own it. I would be happy to buy a fund that is (for example) somewhat cyclical and has been low in the league tables while its investing style is out of favour and will eventually come back into favour, such that when I look at the five year chart in five years forward from now, it is a good performance.

Again, not saying Woodford's holdings or strategy deserved recommendation. Merely noting that the fact it had lost money due to poor picks did not make it impossible to recommend, *if* the strategy was sound. For example, Woodford at Invesco significantly lagged its peers in the months ahead of the bursting of the dot com bubble and ahead of the global financial crisis when he shunned banks despite their high dividends. So the reason to not recommend it was the liquidity risk of his strategy, which ultimately became its downfall.

talexuser

With that logic you should always recommend a falling fund, because from here it could get better, just too bad about the people you recommended to buy when it was a higher price, they can wait while it continues to fall.

Never mind the alternatives doing better in the same sector, when the problems are not sector relevant to all funds, just specific bad picks in the falling fund.

AnotherJoe

talexuser wrote: »

Which fund do you mean? For the Income fund I jumped after it lost 10% and pocketed a gain of 30% in 3 years, and at least another poster did the same earlier in the thread. Some big holdings were just turning into poor picks.

I cannot understand how HL continued to support it after it became clear it would never be able to recoup the losses to be in top quarter 5 year figures and other intermediaries were giving sell notices. HL were effectively saying ignore much better performing funds and hope that somehow a normal income fund will magically outperform better income funds by eventual huge stock price increases rather than the dividends all were getting anyway.

For the Patient Capital, that was too hairy for me and would need a really long term punt, expecting a lot even in the first five years would be unrealistic. We will never know now, a distressed fire sale is unlikely to be in existing investors interest, but the sharks picking the bones at rock bottom prices may well have a bit of luck eventually.

Yes, there's some serious questions needing to be answered (but never will be) how they screwed up so very badly whilst at the exact same time saying that Terry Smith didn't have a long enough track record !

Even at best they look like a right bunch of chumps not putting their customers first.
And of course they get themselves into a tough position because imagine fi say 2 years ago HL had removed Woodfords funds from their W50, then there would likely have been a sell out that made kent Council look trivial and Woodford woudl have blamed the crisis on HL being nervous. Its a bit of a poisoned chalice that list I think.

Moe_The_Bartender

And now Woody's mate Barnett gets downgraded by Morningstar. From Citywire

Morningstar has downgraded Mark Barnett’s Invesco Income and High Income, flagging concerns over the £8.9 billion funds’ heavy weighting to smaller companies.

The investment research group has downgraded its rating on the funds from ‘bronze’ to ‘neutral’ across most of the funds’ share classes, cutting its rating to ‘negative’ on the more expensive options.

Associate director Peter Brunt highlighted the funds’ ‘sizeable overweight’ in small and micro-cap companies, at over 30% of the portfolios, saying they could pose problems for Barnett in funding withdrawals from investors. In this year alone investors have pulled £1.7 billion from the two funds.

‘While the group has been able to meet redemptions so far, Barnett’s continued intent on investing in smaller names gives us cause for concern,’ he said.

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‘Such a shift in market-cap profile for a strategy with sizeable assets has made the overall liquidity profile less attractive and has resulted in significant ownership of many smaller names.’

A spokeswoman for Invesco said there had been ‘no change in our objectives or style in managing these funds’.

‘We maintain our focus to seek value in UK companies,’ she said.

‘Given the best performing stocks have been largely the mega-cap internationally orientated names and that more domestic stocks have underperformed, this may give the appearance of a style drift but this is not the case.

‘More than 80% of the Invesco UK equity income funds is invested in businesses with a market cap of over £500 million and over two-thirds is invested in companies with a market cap of over £1 billion.’

Brunt also questioned Barnett’s skill-set as an investor in early-stage smaller businesses. ‘An increasing number of stock-specific issues, notably among smaller, less proven businesses, in recent years has raised concern over the depth of fundamental analysis and focus on risk,’ he said.

‘Barnett has significantly increased the focus on small caps and micro-caps in the portfolios under his management, the research for many of which he is undertaking himself. We do not believe that this plays to his strengths, which we consider to be among larger and mid-size companies.’

Morningstar’s downgrade echoes that for Neil Woodford’s £3.1 billion Woodford Equity Income fund, which is set to be wound up after dealing was suspended in June.

Brunt downgraded his rating on the fund run by Barnett’s former mentor from ‘bronze’ to ‘neutral’ in May, though he employed stronger language, arguing Woodford’s ‘relentless willingness to push the portfolio to its liquidity limit’ had resulted in ‘extreme positioning’.

That sparked a big rise in withdrawals from Woodford’s fund with £150 million pulled in the space of three weeks, though it took Kent County Council’s attempt to pull its £250 million investment three weeks later to spark the fund’s suspension.

The Invesco Income and High Income funds, which Barnett inherited from Woodford in 2014, sit in the bottom five of the 215-strong Investment Association UK All Companies sector over five years, up just 6.5% and 7.4% respectively.

‘The increased focus on domestic stocks has proved a headwind, as the market has shunned them over Brexit uncertainty, but this does not explain the extent of the underperformance: the strategy has suffered from a high number of stock-specific problems,’ he added.

‘While contrarian investing often involves an element of risk, the nature of some of the issues, including among small caps and micro-caps, has raised concerns over Barnett's implementation of the approach.’

He added that Barnett's strategy, which had traditionally performed better than those of peers when markets were falling, had lacked that defensive appeal last year, when problem stocks Stobart (STOB), Capita (CPI) and IP Group (IPO) weighed on the funds.

Brian65

talexuser wrote: »

I cannot understand how HL continued to support it after it became clear it would never be able to recoup the losses to be in top quarter 5 year figures and other intermediaries were giving sell notices. HL were effectively saying ignore much better performing funds and hope that somehow a normal income fund will magically outperform better income funds by eventual huge stock price increases rather than the dividends all were getting anyway.

They said Woodford had been through periods of underperformance before, but had always come good. The last thing they wanted to do was issue a sell notice the week before it recovered. Make of that what you will. I suppose you could say Mark Dampier wanted to keep the party going as long as possible because he had praised Woodford so much that when Woodford was finished, Dampier was finished too.

fronty

It's going to be interesting to see how this plays out, is anyone here joining the class action?...

https://www.thisismoney.co.uk/money/investing/article-7667927/1-000-reasons-fund-manager-Neil-Woodford-heading-judgement-day-court.html

Moe_The_Bartender

fronty wrote: »

It's going to be interesting to see how this plays out, is anyone here joining the class action?...

https://www.thisismoney.co.uk/money/investing/article-7667927/1-000-reasons-fund-manager-Neil-Woodford-heading-judgement-day-court.html

I struggle to find sympathy with those who went ahead and invested in Woodford funds given all the warnings. You lost. Get over it.

talexuser

I agree an action against Woodford is bound to fail, since everyone knows funds go up and down. Perhaps digressing from income might work, but if the terms give him carte blanche in choices, no chance.

However a target of HL and there is a case to answer, since advertising the Wealth 50 as our favourite funds, having crunched the numbers, decades of experience, thousands of hours investigating, a robust process etc etc, and puffing "no commision criteria" when his discount gave them an enormous financial interest in Woodford funds... now they say they were concerned over a year ago, in that case you put a don't buy, hold or even sell notice out, which they did not do up to the day it ws forced to close.

They say important info this is not personal advice, ok, but then they have an "enviable track record". :rotfl: