Woodford Concerns

Prism

seacaitch wrote: »

If investing in funds of any type, it's crucial to look under the bonnet so as to understand what the fund actually holds. This should be totally obvious but there can be a tendency for some people to regard funds somewhat as black boxes, and this seems to be most common when there is a big brand (whether a personality or an organisation) managing the fund.

It's the assets the fund holds that determine the fund's returns.

It's true that when when investing via a fund you are outsourcing a lot of responsibility to the fund manager but you are also responsible, indeed, ultimately responsible for what you're investing in if operating your own portfolio.

A look under the bonnet of WEI made it very clear that this was an unusual fund running a very unusual portfolio that contained a lot of specific risks compared to other funds with "equity income" in their name.

How many IFAs do you think were allocating their clients' money into WEI? Not that many I would guess.

Perhaps what this episode does highlight is that some HL customers might've been better off paying someone explicitly to run their money for them rather than paying someone to allow them to DIY it themselves without perhaps knowing enough about what they were doing.

I agree. If I don't understand the ethos of the fund manager, understand the types of companies they hold and some of the details of those companies, I won't use an active fund. It is why I have never invested in any Wioodford funds regardless of performance as I had no real idea what he was trying to do. Except for a few early experiments there are only around 10 active funds I would currently consider using.

seacaitch

Reaper wrote: »

The whole point of a fund vs DIY share selection is you don't have to look at individual shares and evaluate their risk. You buy a fund that is rated at your risk profile and investing in the area you are interested in.

I didn't say to do what you're suggesting.

There's a pragmatic balance between looking inside the black box to have an appreciation of what the manager's doing with the portfolio - the types of assets it holds - and inspecting every individual holding, which would be OTT.

In WEI's case, for someone reasonably experienced it didn't require lengthy, detailed analysis to see that the shape of the portfolio was quite unusual, with particular specific risks IMO.

This isn't hindsight bias for me; I do this for each fund I own, periodically looking at the shape of the underlying portfolio to ensure it's in line with what I expect to see.

MaxiRobriguez

If you're going to chuck serious allocation of your wealth at something then it's on you to do some basic research as to what you're putting your money into.

I have some sympathy if people check, invest and then the portfolio holdings change significantly over the short-medium term, but I really struggle to find sympathy for anyone that claims they were misled because WEIF should have been composed of larger, liquid, dividend paying companies.

Probably would have taken 2 hours to get a decent grasp of the fund. Now divide the money you've spent on the fund by 2. That's effectively your hourly rate you're paying yourself to avoid situations like this, and you chose to ignore that hourly rate you could pay yourself because you couldn't be arsed.

seacaitch

Prism wrote: »

If I don't understand the ethos of the fund manager, understand the types of companies they hold and some of the details of those companies, I won't use an active fund.

I run my portfolio for a living and have done so for a long time, so if outsourcing management of my precious capital to people I: a) require a belief that the underlying strategy is sound; and b) need to see that they adhere to the stated strategy and aren't performing unexpected style drift or executing their strategy poorly IMV.

This latter point isn't about performance but about monitoring for behaviour, policies, actions that I think are unsound, imprudent, signs of a weak process etc.

As MaxiRobriguez states, when you've serious money on the line, you'd be a fool not to pay attention and ensure you're operating good oversight of those people or systems you've delegated responsibility to. This isn't the same as wishing to micromanage every holding in every fund. It's the old "Trust, but verify", and probably second nature to anyone used to running projects.

Brian65

cogito wrote: »

I think that what you’re missing is that there have been red flags over WEI for three years or so. HL were clearly wrong to continue promoting the fund.

No thats exactly my point.
So how do we know HL aren't promoting others they have red flags over?

fun4everyone

New statement from Hargreaves Lansdown.

https://www.hl.co.uk/news/articles/woodford-equity-income-what-to-expect-now

Apparently they are

learning lessons

P*** off, recommending that fund for the last 2 years was a complete scam.

Freecall

Reaper wrote: »

You buy a fund that is rated at your risk profile and investing in the area you are interested in.

Reaper wrote: »

When I buy a fund I will look at the aggregate data to make sure I am not over exposed to one area (eg geographical) and other info in the KID.

Really?

I'm not a big fan of KIDs but let's take a look at that of WPCT.

Woodford Patient Capital Trust KID

Risk Indicator
"We have classified this product as class 4 out of 7, which is a
medium risk class."

Turning to the performance scenarios, under the most favourable conditions it says you might expect an average annual return of 14.1% after 1 year (really, for early-stage unquoted enterprise investments!) which somehow reduces to 4.53% if you hold it for the longer period of 5 years.

KIDs are not only misleading but for the inexperienced have an air of authority about them because they are required by law.

I think that we should have a new warning...

'Reading KIDs can seriously damage your financial health'

They're awful.

cogito

I suspect that Woodford was never as good as most of us thought he was. He made a lot of money for me in the years he was with Invesco and for the first couple of years after setting up on his own. In his time with Invesco he will have been constrained by what his employers allowed him to do and, to be fair, did the job well. I suspect though that he was chomping at the bit to put his own ideas into practice and that is partly the reason why he left Invesco.

Now that nobody was holding him back (not even Link whose job was to provide oversight), he was able to put his ideas into practice and the results are there for all to see.

The failure of the various parties involved, including HL and the FCA, is a scandal.

talexuser

fun4everyone wrote: »

learning lessons.

I like the way they are "talking" to the regulators etc to find a resolution, and not presumably being asked some very embarrassing questions about their role in the whole caboodle. Also if they were asking Woodford about his unquoted % already in 2017, why on earth was it still a buy and not a hold until a more stable mix was achieved?....stinks.

bowlhead99

fun4everyone wrote: »

New statement from Hargreaves Lansdown.

https://www.hl.co.uk/news/articles/woodford-equity-income-what-to-expect-now

One of their quotes from that is:
"The most important thing is that the Woodford Equity Income Fund reopens as soon as possible, while protecting the interests of investors and those who wish to sell their holdings"

Opening to redemptions as soon as possible is fundamentally incompatible with protecting the interests of those investors who are not yet ready to redeem.

It's like saying that the absolutely most important thing to do is leave the EU in the next couple of months while having a minimal level of disruption. Such platitudes are playing to the crowd by saying you can have your cake and eat it, and we are right behind you all the way, while the choice in practice is between one or the other.