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Holly's Blog: Woodford faces The Furies

31/05/2019

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Neil Woodford is about as close to a household name as you get in retail investing. But the press and most analysts have progressively turned against him as his main ‘Equity Income’ fund has delivered shocking returns.

Neil Woodford is like the male Beyonce of fund management. Five years ago he was Midas. But the press and most analysts have progressively turned against him, as his main ‘Equity Income*’ fund has delivered shocking returns. Over the last 12 months, the value of the fund is down about 17%.


How do you know when to sell?

The question of when to sell an underperforming fund is one of the hardest to answer. I spoke at an event for The Telegraph earlier this year and the most common question from the audience was “Should I sell Woodford or not?”. I genuinely struggled to answer this, as the answer depends largely on why people bought it in the first place.

UK income funds across the board have had an awful time as Brexit has rumbled on. Woodford has had the worst time. He has his own particular style - he looks for cheap stocks. He holds loads of UK companies which are probably undervalued - but the endless Brexit uncertainty has punished the sector for longer than many anticipated. His fund is made up of deeply, deeply unloved stuff, metaphorical flares when everyone else is into skinny jeans. At the same time, by contrast, the big US tech firms have been having a party, shouting "whoopeeee" and going gangbusters.

Here’s the problem. Any fund investor should be a bit worried if all of their funds are doing brilliantly at the same time. Because trends come and go. and that’s why we diversify. Money is pouring into the coffers of the likes of Lindsell Train and Fundsmith, for example, both of whom have similar styles to each other. These very good managers don’t look for cheap, they look for quality. So they’re not afraid to buy pricey stuff, and fortune has smiled on them for a long time. My observation here is simply that they are similar.

And all those global share funds across the board that we’re loving? Hmm... You might think you are diversified because you own 10 different global funds, but what if 5% of all of these funds is in Apple, Microsoft, and Amazon?

At some point I suspect we’ll see a shift, and all those big global giants which we probably all hold far too much of, will have their day in the doghouse. Take Apple. Most people who could ever afford a smartphone, have a smartphone. It’s now a replacement market, not a growth market. At some point, the growth worm will nibble this Apple.

 

A modern media-fuelled tragedy?

There’s a modern twist at play with Woodford which I find more interesting than endless speculation about his performance. The impact of the media.

When he launched 5 years ago, his high profile took him high. But today the media has turned, and they have become as much of the problem as his performance. One leading paper has run about 5 stories on him in the last week, and most pieces are not saying anything new. Some articles are news and should indeed be reported. Some is just clickbait, because all finance writers know that if you mention Woodford or Hargreaves Lansdown in a story, more people read it. This barrage of negativity creates a structural problem.

Why? Well - the regulator wants fund managers to have the ability to pay up if investors want to bail. So lots of funds are not allowed to have more than 10% of their money in unlisted shares, which take time to sell. Woodford has had to adopt some cute strategies to stay within the rules. But here’s the thing. The unlisted stuff he owns has done quite well. So these shares become a proportionately bigger slice of the pie. At the same time, after every negative article, there’s a stampede for the doors. And when people want their money back, you need to sell shares to get cash to pay out. The last thing I want as an investor is for my fund manager to be a forced seller, especially of unlisted stuff, some of which will be about to float or potentially be acquired.

Many businesses have failed because of cashflow. Not having the right money in the right buckets at the right time. Woodford now faces the media firing squad. The more negative pieces which are written, the more outflows he has to pay out, the more he has to re-jig things in a way he doesn’t want to – and so on. Like a Greek tragedy, we just sit back and watch the inevitable unfold as the performance question is replaced by a bigger structural question.

When it comes to performance, there is nothing new to say about Woodford. He likes domestic stocks. He’s taken big bets. He’s being hammered by Brexit. He’s performed exceptionally poorly over the last few years. There are others with similar approaches who have done a lot better. He could have his future day in the sun, if you believe we’re witnessing investors behaving like sheep and seeing a more widespread global misallocation of capital. Or he might have just picked rubbish companies. The actual truth is that no-one knows what the future holds.

But what is interesting to consider is the role of the media in contributing to his pain. Judge. Jury. And potentially executioner. How this plays out will be interesting to watch.

 

*Translation into English: Equity is a silly way of saying shares favoured by those who also say words like ‘crepuscular’ instead of ‘at dusk’. And 'income funds' focus on paying out a stream of cash to their customers. Similar concept to getting interest on cash savings. Some of the better mainstream income funds which hold British shares will pay out about £400 a year for every £10,000 you have invested. This is because they focus on buying shares in companies which decide to pay some of the cash lolling around the company accounts, out to shareholders in the form of dividends. So the fund manager scoops up all these dividends, divvies them up, and pays them back out to their customers. If you invest in an Equity Income fund, it’s typically because you want to own some shares which might go up in value, but you are equally or more interested in getting some income paid out from these investments along the way.

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    • Other
    Holly Mackay's Response

  • I’ve been investing in Nutmeg’s Risk 10 profile for three years which helped my deposit for my house. I am now wondering whether to use Nutmeg again, or should I use LifeStrategy for my £1000 per month? Is there a difference between Vanguard's LifeStrategy option and let’s say a well known robo adviser like Nutmeg? I am still a beginner and would like to keep things simple, but happy to take risk and prepared to leave my investments for a long time.

    Jordan | Surrey | 26/11/2018 | 10

    • Robo Adviser
    • Online Investment Platforms
    • Funds
    Phoebe Smith's Response

  • I was lucky enough to inherit a significant sum from my father... currently in Alliance trust platform in 10 investment trusts. They have delivered well in the last 20 years. But they are UK equity based. And highly risky. Do you offer a sanity check service for confused individuals like myself? I don’t know what to do...

    Paul | Berkshire | 12/11/2018 | 2

    • Private Pension
    • Online Investment Platforms
    • Funds
    Holly Mackay's Response

  • I am 35 and working part time on a reasonable salary. I've recently taken out a Stocks & Shares ISA with Wealthify (from reading the recommendations on Boring Money) where I pay in £40 per month. However, I'm wondering if I should be doing more? Should I be diversifying and using more than just Wealthify? Or is it better to increase the amount into Wealthify?

    Holly | Sussex | 17/10/2018 | 1

    • Stocks and Shares ISA
    • Online Investment Platforms
    Lesley James's Response

  • I am 25 and starting to seriously financially plan out my future. I would really welcome a 'sense check' on my thinking as well as some help on which investment choices to make. My goals are: To invest for 15 years - my risk appetite is very high (i.e. I could afford to lose all my money). Goal 1 - More Important: To have an investment pot of £1,500,000. Goal 2 - Less Important: To be mortgage free. My plan is: 1) Open an annual Stocks and Shares ISA each of the next 15 years. 2) Open Share trading/dealing account. 3) Reduce my mortgage term to 6 years by 2025. I appreciate the above is a lot to go though, but I'd welcome any help and guidance.

    Mo | London | 15/10/2018 | 3

    • Stocks and Shares ISA
    • Shares
    • Online Investment Platforms
    • Funds
    • Other
    Holly Mackay's Response

  • The recent Metro article which Holly participated in has really inspired me and made me think that investing in shares is something which I would like to do. Unfortunately I am completely thrown about where to start. I would be grateful for any advice you could pass my way. Realistically, I would only have about 2k to invest, so any tips would be gratefully received.

    Sarah-Jane | London | 12/09/2018 | 3

    • Stocks and Shares ISA
    • Cash
    • Online Investment Platforms
    Holly Mackay's Response

  • Is there a reason you don’t list Saga in your Best Buys? Additionally, I have purchased a few investment trust shares but can’t work out how the dividends are paid. Scottish Mortgage is an example. I wasn't given an option to choose how to receive the dividends. It would be useful if you could provide some clarity on how investment trusts pay their dividends.

    Carl | Buckinghamshire | 07/09/2018 | 1

    • Shares
    • Online Investment Platforms
    Holly Mackay's Response

  • Any advice for two young people trying to get themselves a home? My girlfriend and I are saving for a house together. Currently house prices in our area are a ridiculous £300k. The max we can get from banks is about £220k, meaning somehow saving up a whopping £80k deposit. This would take us about 8 years (and house prices are increasing faster than we're saving!) That's not to mention solicitors fees, stamp duty, the cost of moving, furnishing the house, white goods, and any repairs or renovations. It all just seems impossible!!

    Joe | Buckinghamshire | 23/08/2018 | 0

    • Stocks and Shares ISA
    • Lifetime ISA
    • Cash
    • Mortgage
    Kate Fitzpatrick's Response

  • Can you advise me on the best approach when looking to invest in a product that offers compound interest? I’m thinking about funds rather than bank accounts. I also have 4 different pensions on the go. Should I keep them separate to diversify the risk? Or consolidate them? How will these pensions be treated when I retire? Will they be considered in aggregate by the tax man?

    Craig | Clackmannanshire | 16/08/2018 | 1

    • Private Pension
    • Online Investment Platforms
    • Funds
    Helena Wardle's Response

  • I have about two thirds of my ISA in funds with Charles Stanley Direct and about one third left with St James's Place. I was planning to transfer the remaining one third to Charles Stanley Direct. However the recent platform price increases seem to put me in the worst position possible. After Charles Stanley Direct's fee increase, could I do better elsewhere?

    Gerry | Bedfordshire | 15/08/2018 | 6

    • Private Pension
    • Online Investment Platforms
    • Funds
    Holly Mackay's Response

  • I invested my money in a St James's Place managed fund, split into ISAs and bonds, after advice from an adviser who was a St James's Place partner. My investments have done reasonably well, but I've read disturbing reports about St James's Place. Should I have concerns? Should I have found an independent financial adviser?

    Glyn | Essex | 09/08/2018 | 8

    • Funds
    Holly Mackay's Response

  • I wanted an investment trust with an income, so I put £10,000 into The Investment Company. It delivers a reliable quarterly dividend but the capital value has dropped by 10% since I invested 2 years ago. What are your favourite investment trusts?

    Fran | Greater London | 08/08/2018 | 4

    • Shares
    • Funds
    Mark Dampier's Response

  • Is there an average number of funds that one should ideally hold? I have in excess of 20. I am happy with my portfolio and coverage, but wonder if I have too many funds. The second part to the question is how long should you leave an underperforming fund?

    Richard | Hertfordshire | 06/08/2018 | 3

    • Funds
    Holly Mackay's Response

  • I'm 24 and would like to begin investing. Am I better off using a robo advisor such as Wealthify/Wealthsimple or a fund such as Vanguard LifeStrategy?

    Amanda | Greater London | 06/08/2018 | 7

    • Shares
    • Robo Adviser
    • Online Investment Platforms
    Holly Mackay's Response

  • I have cash saved in ISAs and savings accounts - probably a 30% deposit on a property - first time buyer. I am at least 12 months away from getting a permanent job, so at least 12 months away from buying a property. What can I do with the cash in the meantime? Best just to leave it in cash for now, or invest a portion in stocks and shares ISAs?

    Malti | London | 25/07/2018 | 2

    • Stocks and Shares ISA
    • Lifetime ISA
    • Cash
    • Mortgage
    Holly Mackay's Response

  • I am 73 and cautious. There are two areas that your advice would be helpful..what if you just spend thousands on buying the gold standard footsie companies like shell and the rest and keep them for five years and then cash them in ?

    DB | UK | 24/07/2018 | 6

    • Robo Adviser
    • Online Investment Platforms
    • Funds
    • Pension
    Holly's Response

  • I'm nearly 30 and looking to open a private ready made pension, and also an investment ISA for retirement funds or towards a property, but very unsure what risk level to choose (low to medium, or medium to high)? Any comments or advice welcome.

    Susan | West Midlands | 24/07/2018 | 1

    • Private Pension
    • Stocks and Shares ISA
    Cherry Reynard's Response

  • I hope you can help. I recently consolidated two modest pensions into a SIPP in readiness to start UPFLS drawdown in May (2018). Whilst I was hoping for growth in my investments I wasn’t expecting it to rocket and now find I could well be looking at exceeding the lifetime allowance, possibly even before my first annual drawdown in May, and I’m unsure what, if anything, I should do.

    John | London | 03/07/2018 | 3

    • Private Pension
    • Funds
    Richard Allum's Response

  • What are the differences between income and accumulation income funds? How do you declare income reinvested in a fund on your tax return?

    C | 05/06/2018 | 0

    • Funds
    Helena Wardle's Response

  • I would like to open a Junior shares ISA for my Grandson for about £50/month. How do I go about it and can you recommend some reliable companies?

    Roger | Surrey | 26/04/2018 | 2

    • Junior ISA
    • Shares
    Holly Mackay's Response

  • Can you recommend some very basic books for a 69-year-old widow who is now having to manage her money?

    Martha | 12/04/2018 | 0

    • Shares
    • Funds
    Helena Wardle's Response

  • I just found your web site (recommended in Andy Bell's book on Do It Yourself investing). Could you say why you do not review Halifax Share Dealing in your list of ISA providers? Is there anything wrong with this ISA provider for you not to include it?

    Gerald | UK | 11/04/2018 | 0

    • Shares
    Richard Bradley's Response

  • Hi, I've got an old D.B. pension, approximate value £12k. I would like to invest & top up each month. Who would you recommend? Also I would like to make an investment, & don't know where to start? Thanks

    Eve | 04/04/2018 | 5

    • Funds
    • Pension
    Helena Wardle's Response

  • I am post-divorce with a good settlement which I have only partially invested. Are there any courses you can recommend? I have sat in a number of meetings with accountants and financial advisers feeling somewhat patronised! I am sure that there are plenty of women in a similar position to me (aged 55!).

    Eavan | Ireland | 14/03/2018 | 3

    • Shares
    • Funds
    • GIA
    Holly Mackay's Response

  • How can I find a good financial adviser?

    Byron | Greater London | 01/03/2018 | 0

    • Shares
    • Funds
    Holly Mackay's Response

  • I am very lucky to have just received a gift which I want to invest for our retirement. My husband and I aim to retire in around five years. We have 11 more years of school fees to fund, then hopefully university fees for two after that. I've put together a plan for us - can you have a look and see if it makes sense?

    Fiona | UK | 18/01/2018 | 6

    • Private Pension
    • Stocks and Shares ISA
    • Junior ISA
    • Shares
    • Cash
    • Online Investment Platforms
    Holly Mackay's Response

  • We have four grandchildren (2 English living in UK, and 2 Irish living in Eire). We have decided to start savings plans for their futures. Their ages are 18yrs, 11yrs, 8yrs and 4yrs respectively. My age is 75yrs, and my wife is a little older. What should we do, please?

    John | Buckinghamshire | 01/01/2018 | 1

    • Junior ISA
    • Lifetime ISA
    • Shares
    • Funds
    • Inheritance
    Martin's Response

  • How do I start investing, buy stocks, bitcoin, etc with £100?

    Claudette | Bedfordshire | 18/11/2017 | 1

    • Shares
    • Other
    Holly Mackay's Response

  • I am a 59 yr old retired lady with no income but I have reasonable equity..is it worth starting a pension or is it too late?

    LL | Norfolk | 10/11/2017 | 2

    • Private Pension
    • Shares
    • Pension
    Cherry Reynard's Response

  • I am getting long in the tooth at 79, a little forgetful and I am going through a painful divorce. This has shattered my confidence and I need help.

    Richard | Kent | 05/11/2017 | 3

    • Private Pension
    • Funds
    Holly Mackay's Response

  • Have you a review on Halifax Stocks and Shares ISA?

    Moira | London | 21/10/2017 | 6

    • Stocks and Shares ISA
    Dr Richard Bradley's Response

  • My mother is 84 and has around £35,000 in cash, realised when she moved to a smaller house. She would like to invest it and draw income that would be slightly higher than the natural yield - say around £2,000. What is the best vehicle for that please?

    Ed | Sussex | 18/09/2017 | 4

    • Stocks and Shares ISA
    • Cash
    Boring Money's Response

  • I have just sold my house and have a significant sum of money I want to invest. I may want to draw some income but also want to achieve capital growth. Are there funds that aim to achieve both or should I just invest for growth and draw money as I need to for income?

    Jon | Surrey | 13/09/2017 | 1

    • Funds
    Peter Matthew's Response

  • I have a delightful 12 year old daughter and she has just opened her first bank account. I am dreadful with money but I would like to know what I should teach her so that she does not pick up my bad financial habits. Do you have some top tips of things to teach our children so they are wise and responsible with money please?

    Louise | Greater London | 11/09/2017 | 1

    • Junior ISA
    • Shares
    • Cash
    Lesley James's Response

  • I am particularly interested to know whether it is best to diversify and try and cover of a number of shares with investments or to pick out a smaller number and invest more?

    Richard | 05/02/2017 | 3

    • Shares
    Holly Mackay's Response

  • I am confused about index funds, e.g. Vanguard Equity fund. Do they track an index or include the yield? In the case of Vanguard, their low cost is attractive but their portfolio is made up of other Vanguard funds. I assume these probably each carry a fee structure - is this correct?

    Robin | Gloucestershire | 03/09/2018 | 0

    • Online Investment Platforms
    • Funds
    Boring Money's Response

  • Is it worth using a financial adviser when it comes to switching pensions funds, or should I do the research and pick the funds myself? I am no expert in stocks and shares.

    Helen | Dorset | 10/08/2018 | 4

    • Private Pension
    • Shares
    • Funds
    Helena Wardle's Response

  • I've got £20,000 from an endowment policy (astonishing, I know), and I'm looking into how best to invest to get a reasonable return without excessive risk. Any thoughts much appreciated!!

    Penny | Peterborough | 09/08/2018 | 1

    • Stocks and Shares ISA
    • Cash
    • Online Investment Platforms
    • Life Insurance
    Boring Money's Response

  • I use H&L and although they are a bit 'plumy' on the phone I quite like their website and the costs are OK. So I was thinking of H&L for [my son]. I would be telling him to open these two funds and regularly invest and forget about them for 10 years!

    R | Greater London | 29/05/2018 | 1

    • Lifetime ISA
    • Robo Adviser
    • Online Investment Platforms
    • Funds
    Holly Mackay's Response

  • How risky is a Stocks and Shares ISA?

    Alexandra | Greater London | 06/09/2017 | 2

    • Stocks and Shares ISA
    Holly Mackay's Response

  • Should I be even thinking about the stock market?

    Lysa | Greater London | 06/09/2017 | 0

    • Stocks and Shares ISA
    • Shares
    Holly Mackay's Response

  • Pensions vs ISA - which one is best?

    Roderick | Greater London | 06/09/2017 | 0

    • Stocks and Shares ISA
    • Junior ISA
    • Lifetime ISA
    • Pension
    Holly Mackay's Response

  • What funds could my millennial children invest in?

    Anthony | Greater London | 06/09/2017 | 2

    • Funds
    Holly Mackay's Response

  • Hi, I am 67 years old and I want to know the best way to invest £10,000 for growth rather than income. I would like to do this online and to be able to save money on fees.

    Rohan | Greater London | 06/09/2017 | 0

    • Stocks and Shares ISA
    Holly Mackay's Response

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