Woodford Closing Down and How to Avoid Dud Managers

No sooner had I suggested that Neil Woodford should retire after his management company was fired from looking after the Woodford Equity Income Fund (see my personal blog article here: https://tinyurl.com/yxflsh8c ) than he decided to shut down the company. So that looks like the end of his career as a fund manager. Other funds that the company managed were the Woodford Income Focus Fund which has also been closed to redemptions and the Woodford Patient Capital Trust (WPCT).

The latter trust’s share price fell another 5% today and it was already on a discount to Net Asset Value of over 45%. The board of WPCT needs to find another manager and quickly. But yesterday they said that “The Board is in advanced discussions in relation to the ongoing management of the Company’s portfolio and expects to be in a position to announce details of the new management arrangements shortly” so perhaps it won’t be long.

Is the discount on WPCT something to take advantage of? Or can one pick up some shares cheaply that the open-ended funds have been and will continue to dispose of? The problem with this is that valuing some of these holdings is exceedingly difficult and some that are unlisted may be worth a lot less than that at which they were last valued by the trust. In addition it may be some time before there are any realisations from the open-ended funds even in the liquid holdings. In essence it would need a lot of careful analysis by an investor to see if there is money to be made from this collapse, and I am not sure it would be worth the effort. Would anyone have any confidence in picking up shares in companies that Woodford had chosen? They might consider that a very negative indicator now.

There was an interesting analysis in the Daily Telegraph by “Questor” (Richard Evans) today on how to spot poor managers. One is not keeping to their initial promise about dividends from the fund, the second is not having a consistent investment style and sticking to it. He said that investment professionals “know perfectly well that no fund manager can offer certainty of returns but they can and do expect certainty about how their money is managed”. He also said they “have learnt the hard way that when they entrust money to an asset manager on the basis or track record or reputation alone, things go wrong”. I certainly agree with those sentiments.

Which is why I said yesterday that investors need to monitor their fund (or trust) investments closely. Unfortunately many of the people who invest in open-ended funds do so on the recommendation of others (IFAs or platforms) without understanding what they are buying. They often get very little information on the performance of the fund or the issues the manager is facing. Even if they do get sent it, they tend not to read it. This is something the FCA could look at to avoid such debacles in the future.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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