Neil Woodford loyalists pay dearly for stock-picker's style drift
Escapees from Neil Woodford’s Equity Income Fund worked out for themselves that the once-feted stock-picker was picking a lot of duds. They fled the fund in droves, triggering the liquidity crisis, followed by the suspension of dealings and the eventual winding-up. It is still shocking, though, to see how little Woodford loyalists will get.
The first distribution will be 48p-58p, depending on whether investors held an income or accumulation class of share. The higher number is a fairer guide to performance since it gives a total return, but it is still appalling for a fund that started life in June 2014 at 100p.
And the performance will remain appalling when the administrator has flogged the fund’s eclectic collection of stakes in unquoted companies and divvied up the proceeds (minus expenses, naturally). Those infamous holdings may add only 10p-15p, or thereabouts, to the per-share distribution.
It adds up to dismal under-performance – and then some. The average equity income fund rose 34% during the life of Woodford’s version, according to data-cruncher Morningstar’s figures. It’s as if Woodford was playing a different sport.
Actually, rival fund manager Terry Smith at Fundsmith expressed the point better the other day. Pledging to continue to invest in what he knows about, Smith said Woodford indulged in “style drift”, in the industry jargon. “Would Juventus do as well if Cristiano Ronaldo played as goalkeeper?” he asked. “How is Usain Bolt’s second career as a soccer player going?”
Well, quite. Woodford (while paying himself like Ronaldo, don’t forget) strayed a long way from his old specialism in large companies paying big dividends. His mis-adventures in the world of unquoted bio-tech companies might have been more bearable if the bulk of the fund had held more of his old-style investments.
Instead, he selected dogs such as the AA, Capita, Imperial Brands, Provident Financial and Stobart. There was “no common theme that I can detect … other than the fact that they all subsequently fared badly”, said Smith, cruelly but accurately.
Woodford’s cheerleader-in-chief, investment platform Hargreaves Lansdown, may or may not explain in detail, with its full-year results this Friday, why it sustained its ra-ra rhetoric on the Equity Income Fund until the shutters came down last June. Its chief executive, Chris Hill, has been promising ever since to share his “learnings” from the episode and may finally be ready to opine.
He could start by admitting that a supposedly neutral fund platform, if it insists on shoving “best buy” recommendations towards its punters, has to be able to spot serious cases of style drift and shout about them.
Hargreaves failed, so has its “research” department received a root-and-branch reform? And will the firm’s Wealth 50 list of top tips be ditched in its present form? It ought to be. It’s discredited.
FCA was right on overdrafts
Are you scandalised that the banks – or most of them – have decided that 40% is the right rate to charge for an overdraft?
The Financial Conduct Authority does not officially have feelings on the matter. At this stage, it’s merely asking lenders for “evidence of how they have arrived at their pricing decisions”. There has been “significant comment” on the near-identical rates “over the past few days”, notes the regulator.
That dry remark hints at what’s really going on. The FCA fears headlines about greedy banks will be followed by headlines about an incompetent regulator. After all, this situation has arisen because the FCA demanded that lenders abolish fees and sky-high rates on unauthorised overdrafts. From April, only a clean single rate can be applied to all overdrafts, arranged or otherwise.
The FCA, though, should calm down. It did a good thing by stopping banks ripping off unauthorised borrowers – often those classed as vulnerable – with rates far higher than 40%. It injected much-needed transparency into a market it rightly used to describe as dysfunctional.
But the process was bound to create losers since the banks were never likely to set a one-size-fits-all rate at the bottom of the old range. More credit-worthy borrowers are complaining, but would probably find cheaper credit elsewhere if they looked. On this occasion, the FCA shouldn’t be embarrassed. It chose transparency and was right to do so.
John Lewis follows the herd
It was probably inevitable that employee-owned John Lewis would one day stop allowing the world to see its sales numbers on a weekly basis. From now on, it’ll be twice-yearly, just like a boring, normal company.
The timing of the change, though, does not scream confidence. As the old gag goes, bad numbers take longer to add up, and the department stores are on a shocking run.