Woodford Highlights Investment Industry's Problems

Editor's Views: Another week, another Woodford announcement. And why we should all pay attention to Spider-Man's Uncle Ben

Holly Black 2 August, 2019 | 9:43AM
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The ongoing saga that is Woodford Equity Income is becoming almost farcical in its ability to pinpoint all the problems with the investment industry.

Tell When You Sell

This week it emerged that fund manager Neil Woodford has offloaded 60% of his stake in the Woodford Patient Capital investment trust – around 1.75 million shares.

While the £1 million he pockets from the transaction is apparently to pay a tax bill, it’s hardly a vote of confidence for the trust, which is already trading at a whopping 41% discount.

But the really bonkers thing here, of course, is that Woodford was under no obligation to report this transaction to anyone. Even the independent board of directors, which oversees the running of the trust, didn’t find out until three weeks after the trade.

Under official rules, you only need to publicise your share dealings if you have a stake of 5% of more in a company. With WPCT’s assets under management at around £800 million, Woodford only ever owned a fraction of a percent.

But, like so many things in the investment industry, it’s not about the rules, it’s about the spirit of things. If your name is over the door, you are intrinsically linked to the trust - so if you sell, you should tell. That’s especially true at a time when your other fund has suspended trading and investors are fast losing faith in you as a manager.

Woodford finally apologised to investors in his update this week (previously he’d said sorry for the situation, without really acknowledging his part in it), but he may also need to extend that apology to the board – after all, they’re already speaking to potential replacements.

What Would Spider-Man Do?

It’s always interesting to see which have been the best and worst performing funds in any given month.

H2O suffered outflows to the tune of billions of euros through June and July, after Morningstar raised concerns about the liquidity of the bonds in which it had invested. While returns had been good, analysts said they had been achieved at a higher risk than investors might have expected.

So, some investors may be surprised to H2O Allegro at the top of the leader board this month, with a hefty return of 14.9% - that’s more than many funds would hope to achieve in a year.

But isn’t this entirely the point that analysts were making? Yes, the returns are attractive, but at what risk? It’s an important reminder that investing isn’t just about a fund delivering the best returns, it’s about a fund doing what it promised to do (see also: Woodford Equity Income).

If a fund promises steady performance and downside protection but returns 20% in a single month, that isn’t cause to jump for joy; it’s a potential red flag and definite sign you should be looking under the bonnet to see how exactly it achieved that.

As Uncle Ben in Spiderman didn’t actually say but let’s use poetic license and pretend he did: with great returns, comes great responsibility (to do your research on what you're investing in). 

Confession Time

Have you seen our new weekly “5 Minutes With...” feature yet? Investing is so often all about the performance numbers and inflow figures, but being an incredibly nosey person, I love finding out more about the managers who are actually running the funds we spend so much time talking about. It turns out, a lot of them are actually pretty normal, too. Who’d have guessed?

This week we spoke to Peter Michaelis, the head of sustainable investing at Liontrust, and found out he spends his spare time stargazing – I guess that’s some solace for the fact that he never achieved his childhood dream of becoming an astronaut.

Managers are always keen to boast about their best investments but we’re making them confess to their worst decisions and the ones that got away too – would you have turned down Tesla?

Keep reading, we’ve got lots of interesting tidbits coming your way. And do tell us if you think we've missed any key questions. 

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.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk