Woodford Concerns

bowlhead99

IanManc wrote: »

talexuser wrote: »

I'm glad I did - actually just after launch at 99p. He made me 30% in ~3 years - very good for a UK fund.

No, it wasn't "very good for a UK fund".

From launch in June 2014 the total return of the Woodford fund was about 35% over three years, compared with a FTSE all-Share tracker such as L&G which had a total return over the same period of about 25%.

So the Woodford fund had a greater total return than a market tracker of about 3.33% a year, which is not "very good" but is actually only slightly above the total market for the period.

If the option to invest £1000 in the tracker for three years produces £250 of profit and investing in the more specialist active fund for the same time period produces £350 of profit, then clearly the profit from the specialist option is 40% better. 40% more profit in a given timeframe from a comparable product is "very good".

Likewise if the profit from the market is 7.7% a year and the active option is delivering 10.5%, that *is* a "very good" rate of return and the sort of thing that would improve your wealth considerably, versus the largecap tracker option, if the outperformance persisted. For example after 15 years at that rate you have 350% profit instead of a mere 200% profit. It's not simply 'slightly above the market'.

The issue is of course that we are not typically only playing the investment game for snapshot 3-year periods where a fund manager can have a good run or a bad run - we are in it for the long term, over which the outperformance may not persist (and of course in this case, has shown not to have done so far).

As Woodford's portfolio construction gives a very different asset allocation from the index, you would expect it to have a different return from year to year and in times that suit his selections the return would be substantially better than an allocation based simply on market cap, but the times will not always suit his selections and sometimes they will be very bad for his selections.

And if people significantly dump the fund when only his liquid assets can be easily exited, he ends up with a problem of having to close the doors to new business and exiting business and hold a firesale to fix the illiquidity problem.

MK62

masonic wrote: »

Outperforming the index by over 3% per year is great performance, but only if you are investing in companies that make up the index in a similar proportion as they make up the index.

If you invested in "companies that make up the index, in a similar proprortion as they make up the index" then you can't really outperform that index as you have essentially created a closet tracker......you can only outperform an index by being different to that index (with the reverse also being true of course).
I suppose a manager could attempt to create some outperformance by actively trading the investments, and while there is a small element of that in all active funds, too much will only end one way.....I think Mr Woodford has recently had this reinforced on him, even if he hasn't been doing the trading by choice.

Woodford went off on a complete tangent focusing on smaller companies and those not listed in the index. The outperformance in the early year(s) was coupled with a massive increase in risk, which came back to bite him in later years.

True enough......it would seem he bet big on a soft Brexit happening fairly quickly.......and while you would expect your manager to take some risk, he shouldn't gamble on just one outcome.....it would seem Mr Woodford was so sure he built in little contingency for his fund should that outcome not occur. Fair enough, he can point to the market being irrational, but as an experienced manager he should have known that was always possible.....it's not like it's never behaved irrationally before.
In some ways he has been a victim of a combination of negative factors (not all of which were under his control), but he has to take responsibility for positioning his fund in such a way that it could not cope with the conditions it actually faced.

fun4everyone

Brexit outcome/non outcome is just an excuse for Neil Woodford.

Freecall

fun4everyone wrote: »

Brexit outcome/non outcome is just an excuse for Neil Woodford.

I fear that whatever the outcome of Brexit it will become the universal get out clause for no end of under performers.

Johnnyboy11

WPCT can be bought for 64p this morning, a 21% discount to the NAV (if you believe the NAV).

Linton

masonic wrote: »

Outperforming the index by over 3% per year is great performance, but only if you are investing in companies that make up the index in a similar proportion as they make up the index.

I agree completely, but that works both ways and disqualifies any comparison of any active fund, except a closet tracker, with an index. The best way to outperform, or underperform, an index is not to invest in it.

Woodford went off on a complete tangent focusing on smaller companies and those not listed in the index. The outperformance in the early year(s) was coupled with a massive increase in risk, which came back to bite him in later years.

Also agree. He was supposed to be running an "Equity Income" fund. Nothing wrong with running a small company high risk fund if you have the skills to do it but that is not what his customer base thought they were buying.

Nocto

ColdIron wrote: »

Do you need the dividends?

• Hargreaves Lansdown has warned of the impact of the suspension of Neil Woodford's flagship fund on his smaller Woodford Income Focus, saying investors 'who don't need this yield should consider their position'.

https://citywire.co.uk/funds-insider/news/hargreaves-warns-woodford-fund-suspension-is-hurting-income-focus/a1236042

Thanks for the link.

Yes I do invest for the dividends, so over the short term I'm not particularly bothered about price volatility, and I realise that the Income Focus fund could be in for a rough ride with so much holdings overlap with the bigger fund.

I chose this fund for its high dividend and also because it has very few similarities with my other UK equity income funds.

Hopefully over the long term it'll come good and give me some nice capital gain too, but if it does turn out to be a stinker then that's what wine's for..!

redux

Johnnyboy11 wrote: »

WPCT can be bought for 64p this morning, a 21% discount to the NAV (if you believe the NAV).

Straight away I can think of 4 or 5 other less fashionable investment trusts on such discounts that I'd consider before this one, up 30 to 70% in 3 or 5 years, and no doubt there are more to be found.

ColdIron

Hargreaves drops fee on Woodford's fund and urges manager to follow

https://citywire.co.uk/wealth-manager/news/hargreaves-drops-fee-on-woodfords-fund-and-urges-manager-to-follow/a1236181

cogito

fun4everyone wrote: »

Brexit outcome/non outcome is just an excuse for Neil Woodford.

Indeed. More than a few fund managers have said that Brexit is not a factor in their investment decisions. It’s still an unknown but that didn’t stop Woodford from gambling on the outcome.