Woodford Concerns

masonic

dividendhero wrote: »

I'm sure I read it on my mobile on the FT website, so can't find the link. but here goes

My understanding is that second tier holders of Woodford such as HL would today agree a price with the FCA which they would use as a benchmark to value funds of funds. If so it looks like the agreed price is pretty close to the the pre-suspension price of Woodford. I guess HL can afford to take the hit, especially if they take a charge over assets held by Woodford which they can sell pretty much whenever they like

But it won't be HL who take the hit, it will be the surviving investors. Assets will be sold to meet redemptions and the proceeds will be used to repay investors. If the sale price is artificially inflated, then the fund, and consequently the remaining investors will have fewer assets backing their investment and hence their investment will be worth less (yes, worth less, two separate words, for now ).

dividendhero

[

masonic wrote: »

But it won't be HL who take the hit, it will be the surviving investors. Assets will be sold to meet redemptions and the proceeds will be used to repay investors. If the sale price is artificially inflated, then the fund, and consequently the remaining investors will have fewer assets backing their investment and hence their investment will be worth less (yes, worth less, two separate words, for now ).

I thought whole point of suspension was that assets couldn't be sold to meet redemptions :mad:

londoninvestor

(ignore as I misunderstood the point!)

masonic

dividendhero wrote: »

I thought whole point of suspension was that assets couldn't be sold to meet redemptions :mad:

The assets that will be sold to meet redemptions from the MM funds will be all those other than WEIF. So the likes or Artemis Income, Jupiter Income Trust, Majedie UK Income et al. The price of the WEIF will contribute to the unit price of the MM fund, but won't be part of the assets sold.

By way of illustration, imagine the MM fund holds various assets with an aggregate value of £800m, plus 200m units of WEIF priced at an assumed £1, making a total value of £1b, which for convenience we'll say is divided into 1b units.

Net outflows from the fund total 200m units, so £200m of non-WEIF assets are sold to meet these redemptions. After this the fund holds assets with an aggregate value of £600m, plus the assumed £200m in WEIF.

Now it transpires that those WEIF units should have been priced at only 75p based the NAV of the underlying investments. So there are 800m units with a total value of £750m (unit price 93.75p), not £800m as assumed.

Had those earlier units not been redeemed then there would have been 1b units valued at £950m (unit price 95.00p). So selling the units at £1 instead of 95p has caused surviving investors to lose an additional 1.3%.

gadgetmind

londoninvestor wrote: »

the original "no such thing as a hot hand" research accidentally overstated its case by missing some statistical subtleties.

https://www.thecut.com/2016/08/how-researchers-discovered-the-basketball-hot-hand.html

It might have done (or might not) but either way, how many investors have the ability to see through the hype and down to the nitty gritty of the underlying statistics?

I just CBA to sit around wondering who might be the rising star (chances of picking one slim) and who's the over-the-hump has been (ditto) and instead choose a strategy that's been shown to work with little skill on my side.

dividendhero

masonic wrote: »

The assets that will be sold to meet redemptions from the MM funds will be all those other than WEIF. So the likes or Artemis Income, Jupiter Income Trust, Majedie UK Income et al. The price of the WEIF will contribute to the unit price of the MM fund, but won't be part of the assets sold.

By way of illustration, imagine the MM fund holds various assets with an aggregate value of £800m, plus 200m units of WEIF priced at an assumed £1, making a total value of £1b, which for convenience we'll say is divided into 1b units.

Net outflows from the fund total 200m units, so £200m of non-WEIF assets are sold to meet these redemptions. After this the fund holds assets with an aggregate value of £600m, plus the assumed £200m in WEIF.

Now it transpires that those WEIF units should have been priced at only 75p based the NAV of the underlying investments. So there are 800m units with a total value of £750m (unit price 93.75p), not £800m as assumed.

Had those earlier units not been redeemed then there would have been 1b units valued at £950m (unit price 95.00p). So selling the units at £1 instead of 95p has caused surviving investors to lose an additional 1.3%.

Thanks, very clear explanation - you're wasted on us lot :money:

londoninvestor

gadgetmind wrote: »

I just CBA to sit around wondering who might be the rising star (chances of picking one slim) and who's the over-the-hump has been (ditto) and instead choose a strategy that's been shown to work with little skill on my side.

Don't disagree. And also behaviourally - I've moved gradually from mostly active to mostly passive. I used to kick myself when I was in an active fund that underperformed; and yet now I very rarely have a sense of FOMO thinking "if only I'd picked that hot active fund instead of getting the passive average".

arnoldy

masonic wrote: »

The assets that will be sold to meet redemptions from the MM funds will be all those other than WEIF. So the likes or Artemis Income, Jupiter Income Trust, Majedie UK Income et al. The price of the WEIF will contribute to the unit price of the MM fund, but won't be part of the assets sold.

By way of illustration, imagine the MM fund holds various assets with an aggregate value of £800m, plus 200m units of WEIF priced at an assumed £1, making a total value of £1b, which for convenience we'll say is divided into 1b units.

Net outflows from the fund total 200m units, so £200m of non-WEIF assets are sold to meet these redemptions. After this the fund holds assets with an aggregate value of £600m, plus the assumed £200m in WEIF.

Now it transpires that those WEIF units should have been priced at only 75p based the NAV of the underlying investments. So there are 800m units with a total value of £750m (unit price 93.75p), not £800m as assumed.

Had those earlier units not been redeemed then there would have been 1b units valued at £950m (unit price 95.00p). So selling the units at £1 instead of 95p has caused surviving investors to lose an additional 1.3%.

Very clear thanks. But that does now mean the Hargreaves MM funds are now 25% exposed to WEI? In fact HL are now almost doing what they accused Woodford of doing Ie holding untradeable and illiquid holdings - in this case WEI?

fun4everyone

londoninvestor wrote: »

Don't disagree. And also behaviourally - I've moved gradually from mostly active to mostly passive. I used to kick myself when I was in an active fund that underperformed; and yet now I very rarely have a sense of FOMO thinking "if only I'd picked that hot active fund instead of getting the passive average".

Going a bit off topic here but although I certainly understand your feelings and agree with the passive philosophy in general I look at active funds in a different way. You can't go passive in every sector, micro caps in the UK or small companies in Japan for example. If you want to access those sort of things you have to go active so I maintain a mix of both in my equity portfolios.

thelawnet

masonic wrote: »

The assets that will be sold to meet redemptions from the MM funds will be all those other than WEIF. So the likes or Artemis Income, Jupiter Income Trust, Majedie UK Income et al. The price of the WEIF will contribute to the unit price of the MM fund, but won't be part of the assets sold.

By way of illustration, imagine the MM fund holds various assets with an aggregate value of £800m, plus 200m units of WEIF priced at an assumed £1, making a total value of £1b, which for convenience we'll say is divided into 1b units.

unnecessary.

14.04% of the Income & Growth Trust is in Woodford https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hl-multi-manager-income-and-growth-trust-accumulation

4.81% of the Balanced Managed Trust https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hl-multi-manager-balanced-managed-trust-accumulation/fund-analysis

10.17% of the Equity & Bond Trust https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hl-multi-manager-equity-and-bond-trust-accumulation

8.23% of the High Income https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hl-multi-manager-high-income-income

5.65% of the Special Situations https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hl-multi-manager-special-situations-trust-accumulation

3.00% of the Strategic Assets https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hl-multi-manager-strategic-assets-accumulation

8.59% of UK Growth https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hl-multi-manager-uk-growth-accumulation

(maybe some more)

Anyway, if you sell the Income & Growth, with a 14.04% Woodford holding, let's say Woodford takes a 25% haircut, then it depends how much gets sold.

If 10% of money leaves HL I &G, then you currently have

85.96% of real assets

14.04% of overvalued Woodford trash, which we are actually saying is worth only 10.53% (so an immediate discount of 3.51% to the current selling price)

Anyway, so after that 10% leaves, you have

75.96% of real assets
10.53% of revalued Woodford trash

= 86.49%, but that is based on 90% of the capital, so the new value of the fund is 86.49 / 90 = 96.1%, so you can see that the loss is:

25% (or whatever you think it will go down by) of the value of the Woodford holding as a % of the total fund value
divided by the proportion of capital you think will stick with the fund (90% in this case).

So for example, if 20% of HL units were sold/80% not sold, and the loss in value in the Woodford trash was 30%, then it would be:

(14.04% * 30%) / 80% = 5.265%

It's easy to see that the lion's share of the potential saving comes from selling the MM funds with the Woodford fund priced at the suspended value (as against the true NAV it will be repriced at at some point in the future) rather than the saving on the loss of capital from the outflows (though I think there will be further costs to reflect transactional costs from the outflows).

I presume though these things take several days to sell, that HL won't be able to delay settlement till they reprice at some lower price factoring in the real cost.

Anyway, with most of the funds having such large stakes, selling now at potentially 2 or 3% above real value, seems like almost as much of a no-brainers as not buying these expensive fund-of-funds in the first place....