Woodford Concerns

Aminatidi wrote: »

I'm of the view that I like to have some idea what I'm investing in.

Looking at what Woodford Equity Income holds I haven't heard of most of it.

There are tens of thousands of listed and unlisted companies in the world, and thousands in the UK. Unless you have a particular hobby or day job that would bring you into contact with most of them, there's no reason to have heard of most of them.

Sure, an investment into an actively managed fund may not have you end up with your money in all of the 'usual suspects' which dominate the market indexes dut to their size. But that's the whole point of investing into a conviction-driven actively managed fund where you pay a fee for the manager to seek out investment opportunities and build a portfolio with long term prospects whose company and industry mix diverges from the market index.

Back in 1999 there were people avoiding Woodford because he didn't invest in all the standard no-brainer stuff they had heard of. Why isn't he heavy in BT like the index and his peers? Doesn't this dummy know that telecoms is the future, the world is getting ever more connected?!

In 2007, why isn't he buying all these banks that pay reliable high dividends, like Lloyds and RBS and B&B? I understand they are sensible things to hold, and everyone else with his type of fund is doing it. I would understand that approach, but I just don't get what this guy is trying to achieve and why his investors are ok getting lower returns than a simple index right now?!

In 2018, why is he holding this smallcap biotech firm which hasn't yet had its stage 2 trials in its leading product? Doesn't he know I want bread today not jam tomorrow?! What's the point of him owning sterling preference shares issued by a Guernsey- domiciled property group that owns warehouses outside Moscow? Why not buy something I've heard of instead with lower yield, like a consumer goods conglomerate which sells into emerging markets? None of his peers are worried about the risks there, and I want something I understand, by which I mean I want something that everyone else is buying to make sure they keep up with a cap weighted high yield index!

Frankly I can see why his approach doesn't suit all investors but I don't think a couple of bad years implies his choices are irrational or his strategy is doomed. His major issue is having too much illiquid stuff in a period of heavy redemptions, causing potential problems in terms of asset mix, which if people are concerned about and pull their money out could become a self-fulfilling prophecy. But simply holding a proportion of unlisted assets is not a terrible approach as long as you have advertised to investors that your strategy might (or definitely will) incorporate that.

cogito wrote: »

But Equity Income funds aren’t supposed to hold start up businesses which haven’t got profits to pay dividends.

If you are running an equity income fund, one choice is to invest only in things that yield 3-4%. Another is to hold some things that yield 4% and some that yield 6% and some thing that yields 0% now but is available cheaply now and could grow to be a quality income-generating asset if your investment thesis holds out.

When he was back at Invesco he generally had a chunk of off-piste investments but nobody complained when they came good, boosting the returns from the mainstream stuff. And if they weren't in the top 10 holdings on a factsheet, nobody cared so much, other than expressing self-righteous indignation when they later learned he had done it and were embarrassed they hadn't thought to ask him about it earlier.