Make no mistake, this is a landmark week in the history of British fund management.
Yes, there’ve been several City “stars” who have fizzled out over the years. But surely none has crashed to earth in quite such dramatic fashion as Neil Russell Woodford CBE.
Earlier this week Woodford was fired from his flagship fund, Woodford Equity Income, which was gated in June after years of dismal performance, and the fund shut down. The fund’s assets are to be liquidated, but according to the FCA investors will have to wait until January to get their money back. Suffice it to say, it will be substantially less money then they originally invested. It has since been announced that Woodford's company, Woodford Investment Management, is to close down completely.
An industry shaken to its core
Adrian Lowcock, head of personal investing at Willis Owen, summed it up when he told the Financial Times: “We have seen the complete demise of the most famous fund manager the UK has seen for years… This collapse is on a par with the implosion of New Star at the height of the financial crisis, and it will shake the funds industry to its core.”
It is indeed a rude awakening — including for Mr Lowcock, who in previous roles at Architas and Hargreaves Lansdown was one of Woodford Equity Income’s most outspoken advocates.
I’ve spent some time in the last few days looking at what was written about Woodford and the Equity Income fund at the time of the fund’s launch in June 2014 and in the months that followed. What is so extraordinary is not just how much coverage there was, but the fact that it was almost universally positive. There were frequent references to “the Oracle of Oxford” and Britain’s answer to Warren Buffett”. Even the BBC described him as “the man who can’t stop making money”.
The role of Hargreaves Lansdown
What’s also very noticeable is how much of the coverage emanated from Hargreaves Lansdown.
Interestingly, many of the articles published on the platform’s website around that time have since been removed, but many remain. In one, the company’s founder Peter Hargreaves calls Woodford “one of the most gifted fund managers I have ever met”. Other HL commentators lauded his ability to “get the big calls right” and to “shelter money from the worst of market falls”.
Mark Dampier, Hargreaves Lansdown’s head of research, was quoted again and again in both the trade and mainstream press. One distinguished newspaper even gave him his own weekly column.
Dissenting voices
Yes, there were a few dissenting voices. I regularly wrote on The Evidence-Based Investor about the folly of joining the stampede into Woodford’s funds. Indeed a journalist Financial Times journalist later contacted me to say thank you for persuading him and his partner to take their money out before it all went pear-shaped.
But those of us who did express concern — Paul Lewis from BBC’s Money Box was another one — were drowned out by Woodford enthusiasts. Responding to my suggestion that the academic evidence concludes, overwhelmingly, that winning funds are all but impossible to spot in advance, a well-known adviser wrote an extraordinary article in The Scotsman headlined Academics know nothing about investing.
I don’t mean to sound smug or clever. I had no reason to believe that Woodford would perform quite as badly as he did. I was just pointing out that the odds were heavily stacked against him beating the market on a cost- and risk-adjusted basis over any meaningful period of time.
Substantially worse off today
In the event, Woodford wasn’t just beaten by the market; he was absolutely trounced by it. Apart from the worry that his investors have had to endure, and will continue to do so, they are substantially worse off today than if they had simply ignored the hype and invested in a low-cost index tracker.
Rest assured, our evidence-based investment process means we would never expose our clients to the Woodford Income Fund. But many firms did.
Let’s hope that this whole sorry episode makes people think rather more carefully before entrusting their money to a heavily marketed active fund manager.
Realistically, though, memories are short. This is just the latest in a long line of investment fiascos, and it won’t be the last.
