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Is Woodford Saga a Mixed Blessing for the Industry?

EDITORS VIEWS: Woodford saga could put investors off for good, or it could force people to question the cult of the star manager and look harder at their investments

Holly Black 21 June, 2019 | 11:17AM

Woman with megaphone

There is much to be worried by in the Woodford Equity Income fund saga, as it continues to rumble on:

Don't Lose Faith in Investing

That the FCA had concerns about the liquidity of the fund more than two years ago. That Hargreaves Lansdown continued to promote it on the Wealth 50 list despite being in talks with the manager about the changing nature of the fund. That so many commentators who never saw it coming – or didn’t have the guts to voice their concerns if they did – are now revelling in a game of “I told you so” among each other. 

But most worrying of all, is that a whole raft of investors may now have lost faith in the industry for good. 

In amongst the mess, it’s easy to forget that this antiquated, dinosaur-ridden industry is making progress. Fees are coming down! Transparency is improving! Competition is increasing! Auto-enrolment and pension freedoms has started to put investing on the agenda. Robo-advice and fund supermarkets are making it cheaper and easier. There are apps advertising on prime-time TV, telling people to invest their spare change!

But consumer trust in finance firms is fragile and once lost is difficult, if not impossible to regain, as many banks have found since the financial crisis. It would be a crying shame if the misfortunes of one over-mighty fund manager brought crashing down an entire generation’s investment prospects. 

The optimist in me hopes this is not the case. If anything, what it may do, is cause people to question the cult of the star fund manager, which is no bad thing. It may also encourage investors to take a look under the bonnet at where their money is actually going – to glance at a fund factsheet every once in a while, perhaps. To not blindly trust a best buy list or a track record which has no relevance to what someone is doing today. 

But not yet. First there will be panic and anger, and a likely domino effect as it emerges that other products are not quite doing what they said on the tin. Just this week, Morningstar analysts put the rating of the €2.3 billion H2O Allegro fund under review amid concerns about the “appropriateness and liquidity” of its corporate bonds investments. 

This tale is not even nearly over but I hope, when it is, there is a happy ending for investors.

The Million Dollar Question

That more funds are taking environmental, social and governance factors into account when they invest is undoubtedly a good thing. Sure, the cynic in me wonders how many are truly engaged and passionate on these issues and how many see it as a box-ticking exercise to attract millennial investors, but let’s set that aside for now. 

ESG is a fluid, subjective way of investing and no strategy will please everyone. One salient issue raised this week by our analysts is how funds should engage with so-called “bad” companies. Tobacco is bad, you might say, let’s screen those companies out, we want nothing to do with them. That’s been the way that ethical funds have traditionally employed negative screening.

But the new wave of ESG investors say: sure, we could just avoid them, or we could become major shareholders in these businesses and encourage them to change for the better. We could encourage energy firms to scale-up the renewable parts of their business, for cigarette firms to further develop e-cigarette and non-tobacco options, and car companies to improve their emissions levels and develop electric vehicles. 

Whichever side of the fence you're on, watching this space develop over the coming years is going to be very interesting. 

Gin Could Be Just the Tonic For Fever-Tree 

I’m a big fan of investing in what you know; in looking around you and seeing what works. Watching a tennis match this week, one thing I saw that definitely seemed to be working for much of the crowd was lots of gin being mixed with Fever-tree tonics. 

Fever-tree’s shares have hit a sticky point in recent weeks amid concerns of slowing sales. But if you consider the lack of a Royal Wedding this year, the completely rubbish weather and the fact that sales had been growing exponentially in previous years, maybe it’s not much to be concerned about. 

This upstart firm, which a few years ago no-one had heard of, is now a firm favourite in pubs and restaurants across the country and has billboards and banners at major sporting events. Shares might be down but I don’t think they’re OUT! (sorry)

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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