Is Woodford the final straw for active investors?

woodford smile

There will be a lot of private investors inside the gated community of the Woodford Equity Fund (WEI) who will be asking, just what is there to smile about?

This time last week, Hargreaves Lansdown had this fund in their Wealth 50 buy list, Woodford managed over 3% of SJP’s £100bn of  assets and Woodford was a  key manager of the Openwork Omnis proposition. Now SJP and Openwork have sacked Woodford and Hargreaves Lansdown have removed WEI from the buy list.

This is because, following the decision of Kent County Council to withdraw around £260m from WEI, Neil Woodford felt he had no choice but to suspend all dealing and gate WEI. Everything that followed diminishes Woodford’s opportunity to put things right and remaining investors look doomed to suffer a great deal more than they have already.

When Woodford has managed to reorganise his portfolio, he faces a probe from the FCA and the prospect of the companies he is invested in being shorted, his transactions being sabotaged by dealers who have seen his trades coming.

Investors have pulled a staggering £4.3 billion from the fund since assets peaked at £10.2 billion in May 2017, after a torrid three years for the manager.

Woodford Equity Income sits rock bottom of the Investment Association’s UK All Companies sector over that period, down 17.7%.

This is Citywire’s one year rating which again places Woodford plum last,

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There is very little for Woodford’s investors to smile about.

I was however amused by one  video published by NMA featuring vox pops from City gents. One fellow looked very smug and told the camera he has had nothing to do with Woodford as he invested in St James Place.


So far so bad, but is this the final straw?

It seems not, St James Place has replaced Woodford not with a passive manager but with Columbia Threadneedle. This seems odd to me. The passive managers have the size and dealing power to create liquidity to trade and after such a disastrous time of late, investors might be looking for a safe haven.

But it seems that SJP policyholders don’t have much say in matters – and that seems to go for their financial advisers too.


Reversion to mean

What the collapse of Woodford is showing us is how vulnerable a contrarian fund manager becomes when his fortunes wane, and how little protection he gets from the platforms he has supported. For 18 years Woodford has built up money for SJP, he was sacked hours after protecting his investors with the gating.

Ironically Threadneedle were created by Allied Dunbar, SJP\s arch rivals in the 1990s as a means of competing with wealth managers. Threadneedle have long since cut ties with former owner Zurich, as have Openwork, formerly the Allied Dunbar direct salesforce.

The close ties between these organisations is still evident, St James Place head office, once dubbed the refugee camp, is only a few miles from Swindon where Allied Dunbar’s Tri-Centre controlled its empire and Signal Point, the HQ for Threadneedle’s operations.

Much has been written about active management performance reverting to mean (as Woodford’s has), not so much about the limitless capacity of the financial services to reward its own. I wonder how many SJP clients – had they not transferred to SJP from Allied Dunbar agencies, might be in Threadneedle funds to this day!


Everyone – asleep at the wheel?

Questions have to be asked about why Woodford was sacked only after the gating of WEI. If SJP and Openwork only employed him to manage parts of their fund proposition,  why did they not take pre-emptive action earlier?

Similarly, just how did things get to the point where Woodford had to gate his fund? Isn’t the liquidity of funds as big as WEI a matter of concern for SJP, Openwork and especially Hargreaves Lansdown- who held the fund directly?

The contagion following Woodford’s WEI clearly included SJP and Openwork’s mandates and may well spread wider as investors consider the issues of liquidity in their active fund portfolios.

If this kind of thing can happen, in full sight of the FCA , to Woodford, who else might be vulnerable. If fund platforms had to wait till Woodford shut the fund to stop recommending it,  what value a Wealth 50 or the service offered by SJP and Openwork?


Is Woodford the final straw?

Not a bit of it.

SJP will continue to recommend active fund management and their clients will continue to pay a high price for variable performance.

This of course doesn’t matter to most clients who are comforted by SJP’s superb customer service and the kudos of having their money run by them.

People want to feed the great maw of financial services, whether in the City or in Cirencester, good luck to them.

But for those of us who consider ourselves Evidenced Based Investors, the chances of us ever returning to active managers – has receded a couple of notches.

Not so much the final straw but another brick in the wall put up to defend our finances from predation.

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About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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