Have We Learned Anything from the Woodford Saga?

Editor's Views: Twelve months on from the suspension of Woodford Equity Income, the fund industry and regulators have gone suspiciously quiet

Holly Black 5 June, 2020 | 11:46AM
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A year on from the closure of the Woodford Equity Income fund and investors are still waiting for their money back. While it looks like some progress has been made this week in offloading some of the fund’s unquoted holdings, it remains to be seen how good a deal has been struck and what losses investors will suffer as a result.

When the fund was first forced to suspend trading, there was uproar from across the industry: people asked how this could ever have been allowed to happen, they promised change and vowed to bring to people to account. Twelve months later, things have gone very quiet.

Talk of a ban on funds holding illiquid assets in open-ended funds has thus far come to nothing. Investors have received no clarity on how the fund was allowed to get into the state it did, and there has been no word on the role of Hargreaves Lansdown in continuing to champion the fund while being aware of issues within its portfolio.

Woodford himself? He has faded quietly into the ether; far from being banned from ever handling investors’ money again, there have been rumours he might set up shop in China.

I’ll say again, what I said a year ago. There are only two victims in all of this: the investors who blindly trusted the fund manager who promised them it would all come good, and the industry, which may never be able to rebuild the trust that has been stripped away as a result of the debacle.

We cannot allow these questions to go unanswered. The regulator, trade bodies and fund managers across this industry do themselves and investors a disservice by not shouting from the parapets about this every single day.

Why Are Complaints Going Down?

As per the above, I think we can agree that last year wasn’t the industry’s finest. As well as the Woodford scandal, we saw the collapse of minibond firm LC&F (among others), and the passing of the PPI deadline. So, it was quite surprising to see that the number of complaints made to the Financial Ombudsman dropped 30% on the previous year.

There are few ways to read into this data. The optimist might say that the finance industry is improving and there are fewer people complaining about the products and services they have received. Others might suggest that perhaps firms are getting better at dealing with complaints, so fewer are having to be referred on to the Ombudsman (who you only turn to when you haven’t received a satisfactory outcome from the company to which you’ve complained).

The cynical among us, however, might suggest it’s worth waiting for the next batch of figures before we get excited about this downward trend - the Ombudsman itself said the pandemic has already put a strain on the relationship between firms and consumers.

Beyond ESG

Our columnist John Rekenthaler thinks we’ll all be ESG investors in the end. To be sure, it is hard to make a case against taking environmental, social and governance factors into account when investing. The companies that prioritise these factors have shown themselves to be innovative, disruptive and, crucially, profitable. As a result, ESG investing is no longer a fluffy sub-branch of investing but a matter of picking out the companies that are likely to survive and thrive for years to come.

Despite that, I don’t think we will all be ESG investors in the end. I think we’ll do even better than that. I believe that at some point – in five, 10 or 20-years’ time – ESG factors will be so engrained in the way we build our portfolios and choose funds and companies, that employing this strategy will be the norm. It will be those people seeking out the carbon-intensive companies with poor workers’ rights or subpar corporate governance that will be labelled as “other”. The rest of us will simply be investing.

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


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