Does Woodford's failure have implications for other widely owned funds?

bostonerimus wrote: »

Of course closed end funds also have issues when people buy them at significant premiums. The Lindsell Train IT had a big drop this summer that I imagine was a shock to many investors.

50% of the NAV is in an unlisted company. The fund manager itself LT. Price crashed when Hargreaves Lansdown removed LT funds from it's Wealth 50 list. Another illustration of how quickly market values can move on a single news item.

iglad wrote: »

You tried to sell a small company, not surprised there were no initial takers. The fact it might be listed means nothing really as you have found out.

Further investigation reveals a sell trade yesterday of 50,000 shares, along with a 50,000 trade today. Someone else has caused indigestion.

The whole purpose of market makers is to provide liquidity in a listed stock. One doesn't always trade at that precise moment of time with an investor willing to buy on the other side.

Not an uncommon experience I should add. Not unduely concerned either. As the trade is in the queue.

arnoldy wrote: »

Some of the Hargreaves Landsdown Multi Manager Funds are heavily invested in Woodford (12%). So there could be a drag on the HL MM fund performance if the Woodford Fund value drains away during the liquidation.

There's bound to be a ripple out effect given the amount invested in the funds.

noclaf wrote: »

How does one then diversify their tracker/funds purely based on hedging for one investment going kaput due to a Woodford style scenario?

It is worth properly understanding what 'going kaput due to a Woodford style scenario' means.

In that unusual scenario the manager constructed a fund which was open-ended (investors could add or remove money from it whenever they liked). As the fund grew he added assets which would be difficult to sell (not 'liquid') and were intended to be held for several years.

When some investments went wrong, the total size of the fund fell meaning that the 'illiquid' assets were a greater proportion of the total. When investors were unhappy with the fund's performance, they demanded to take their money out of the fund, and the manager got that money for them by selling the mainstream, easy-to-sell assets - because he couldn't sell off parts of the illiquid ones at short notice.

As the fund fell in size from ten billion to under four billion, the "can't practically be sold at a decent value for months or years" proportion of the assets, kept increasing. This caused a major problem because they couldn't let people keep taking their money out of the easy assets and leaving a large rump of difficult assets in the fund to be shared between remaining investors. They froze redemption requests for a while to try to restructure it, which was still impractical in a short timeframe, and eventually decided to wind it up and return the eventual proceeds over time.

The above is not written to goad people into further criticism of Woodford (which exists on more than enough threads already), but just to point out what happened to the Woodford fund and why it is no longer a viable fund.

So when you say you want to avoid a 'Woodford style scenario' causing a fund to go kaput, you should realise that this is uncommon and the particular reasons it went kaput are not so relevant to other types of funds that may also be open-ended but have very different strategies - holding a broad set of holdings rather than a concentrated portfolio, and not buying illiquid assets.

For example I only invest in VLS 100 but if I wanted to add a second fund purely to 'not have my eggs in one basket' do I then open with BlackRock, Fidelity or a HSBC product

Generally with your Lifestrategy100 fund of funds you are relying on Vanguard being able to have enough liquidity in their (e.g.) UK FTSE tracker and their US tracker and their Japan tracker etc (where the underlying investments in companies are held) to be able to redeem the Lifestrategy's holdings in those trackers, so that in turn the Lifestrategy fund can send you cash in exchange for your Lifestrategy shares.

A 'Woodford style' event should not be likely because they do not mix liquid and illiquid assets. They buy shares in companies in proportion to market weights (more shares in the bigger companies) and for companies to qualify for the indexes in the first place they need certain levels of free float and liquidity (e.g., Lifestrategy does not invest in smaller companies at all).

If you were thinking that you wanted to avoid 'eggs in one basket' by using a BlackRock tracker instead of a Vanguard tracker, that doesn't really help with liquidity problems at the individual company level. For example, if it becomes very difficult to sell Apple or BP or Amazon or some other company, then BlackRock will not have any better luck in selling it than Vanguard, so their tracker funds-of-funds would have similar structural liquidity problems to their rivals.

Still, in that unlikely scenario, if you need access to the capital in your investments it would not hurt to have your money in more than one basket.

If you ask the question more broadly and the reason you want to avoid 'eggs in one basket' by spreading between multiple fund products is not just because of a 'Woodford style' liquidity problem event but also because of fear of unprecedented large scale manager fraud etc, note that FSCS protection only covers £85k for failed firms, so if you have a massive investment you may feel safer by using two different fund managers' investment products and two separate fund platforms to hold them on.

It sounds like you are already considering holding multiple investment products because you are talking about small cap, commodities etc which are not the things you get in a VLS100. Most people when their private investment portfolios get large, hold multiple products.

for example to use a bank rather than a asset manager/Hedge fund. I don't think you can ever be fully protected but aside from diversification at a investment level ( small caps, FTSE 100, Commodities, Emerging Markets etc) does anyone here also think abt spreading risk across different types of firms?

Different products, yes. Different providers, yes. But different types of firms (e.g. bank versus asset manager) does not really make sense.

If you invest in a fund product with the help of a bank it will not really be a 'bank' product, it will be an investment product run by an investment manager, who may be tied to the bank but run as a separate division from retail banking services. For example, HSBC is a bank and Vanguard (like Blackrock) is not a bank, but both provide credible index funds and multi-asset investment solutions while offering their own investment platform through which you can only buy their own funds.

If you mean different product types entirely, e.g. get current accounts with HSBC and savings accounts from Goldman Sachs and index funds from Vanguard and emerging markets funds from Baillie Gifford and private equity funds from Harbourvest and brokerage services from Jarvis and general investment platform services from AJ Bell, then yes it can make sense to not assume that one provider is best for everything, in which case you will end up with a 'spread' of risks across your financial world.