Woodford Equity Income Fund Suspends Trading

[doug2500]

Just read an interesting article on Trustnet about lessons to be learned from Woodford.

They didn't mention once that the answer to all the issues they highlighted is.........Investment Trust.

IMO a vastly superior investment vehicle.

[scotia]

Just read an interesting article on Trustnet about lessons to be learned from Woodford.

They didn't mention once that the answer to all the issues they highlighted is.........Investment Trust.

IMO a vastly superior investment vehicle.

Interesting thought - however it may not be correct.
Take the current case of Woodford - with both a Fund and an IT. The investors in the Fund will ultimately get the full value of the Fund's investments. But for those in the IT, they can only hope that it will also be liquidated, otherwise their return will be much reduced by its large discount. Purchasing a Fund involves market risk. Purchasing an IT, in addition, involves investor sentiment risk. Investor sentiment can work two ways - creating a large discount as currently with the Woodford IT, or alternatively creating a large premium due to investor expectations which may not be fulfilled. Just before the dot com crash, if my memory serves me correctly, there was a Henderson Global Technology Fund and a Henderson Global Technology IT with near identical holdings - but the IT ran at a high premium in spite of the managers advising that it made sense to buy the Fund in such a circumstance. Guess which suffered most in the dot com crash.
Another problem with ITs is that the investors have little power to do anything about poor performance. A Fund Investor can simply sell at NAV, and if this continues ultimately the Fund will be closed. An IT investor can only sell if they find a willing buyer, almost certainly at a substantial discount - and the manager is unaffected. Of course if you are a billionaire with massive investments in an IT, then you can seek to replace the manager - but for more modest investors there is really no remedy.

[Dod101]

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[Take the current case of Woodford - with both a Fund and an IT. The investors in the Fund will ultimately get the full value of the Fund's investments. But for those in the IT, they can only hope that it will also be liquidated, otherwise their return will be much reduced by its large discount. Purchasing a Fund involves market risk. Purchasing an IT, in addition, involves investor sentiment risk. Investor sentiment can work two ways - creating a large discount as currently with the Woodford IT, or alternatively creating a large premium due to investor expectations which may not be fulfilled. Just before the dot com crash, if my memory serves me correctly, there was a Henderson Global Technology Fund and a Henderson Global Technology IT with near identical holdings - but the IT ran at a high premium in spite of the managers advising that it made sense to buy the Fund in such a circumstance. Guess which suffered most in the dot com crash.
Another problem with ITs is that the investors have little power to do anything about poor performance. A Fund Investor can simply sell at NAV, and if this continues ultimately the Fund will be closed. An IT investor can only sell if they find a willing buyer, almost certainly at a substantial discount - and the manager is unaffected. Of course if you are a billionaire with massive investments in an IT, then you can seek to replace the manager - but for more modest investors there is really no remedy.

If in trouble though most IT Boards will replace the manager and the performance and sentiment will most likely improve. You can see that with Scottish Investment Trust and Monks, for instance. ITs with very large discounts will not usually stay that way for long because it will attract investors buying £1 for 60p. Usually (probably as in the case of Patient Capital) a very high discount to NAV indicates that the market does not really believe the value of the assets so on a liquidation the true value would be shown to be much less. Furthermore, as you must know an IT does not just have the investment manager it has an independent Board of Directors to oversee him. Most Boards are very sensitive to poor performance and will do something about it. Most managers of OEICs do not have that and I suspect that that was part of Woodford's problem.

You will not be locked in with an investment trust, unlike the holders of Woodford's OEICs. There will nearly always be some sort of market. An investor cannot always sell a fund at NAV and if the fund is closed he cannot sell at all as can be seen from the Woodford funds.

I'll take an IT anyday.

Dod

[Backache]

Hubris and Avarice have a way of outing themselves no matter what the structure of the investment vehicle.
As a vehicle Patient Capital was undoubtedly a superior structure for illiquid investments that an open ended fund. Unfortunately for the share holders this has not stopped the directors failing to stop taking out huge loans to buy dubious assets from the open ended fund.
Then we also have the previous scandal of the cross holdings of split capital trusts..
The lesson I fear is that one has to keep one's eyes open no matter the structure of the fund.
I would have my savings in a low cost tracker in an open ended structure before many IT's which is not to say that there are not many good IT's I still hold quite a few.

[richfool]

Fo those interested I note there is a prog on BBC1 TV tonight at 8.30pm (Panorama) "Can you trust the The Billion Pound Investors" which will be discussing the Woodford scandal.

[richfool]

For those interested I note there is a prog on BBC1 TV tonight at 8.30pm (Panorama) "Can you trust the The Billion Pound Investors" which will be discussing the Woodford scandal.

Just spotted this related BBC News item, which will no doubt also feature in the Panorama prog tonight:

One of the world's leading fund managers has been forced to resign after the BBC discovered he had broken investment rules.

Mark Denning helped to manage more than $300bn (£229bn; €265n) of investors' money at Capital Group.

BBC One's Panorama uncovered evidence that suggests he was secretly acquiring shares for his own benefit in some of the same companies as his funds.

https://www.bbc.co.uk/news/business-50089887

[jonesa1]

The only surprise is that it has any value at all.

That probably relies on finding a very gullible buyer.

[Alaric]

The lawyers are starting to circle

https://www.slatergordon.co.uk/commerci ... -lansdown/

[BrummieDave]

The lawyers are starting to circle

https://www.slatergordon.co.uk/commerci ... -lansdown/

Very interesting...

[AleisterCrowley]

Possibly not the right board, but this is worth a read, particularly the final paragraph
https://www.scotsman.com/news/opinion/a ... -1-3980061

[Fluke]

The lawyers are starting to circle

https://www.slatergordon.co.uk/commerci ... -lansdown/

Very interesting...

Possibly the subject of a new thread but as a HL customer (not in funds) I’m wondering what impact a successful lawsuit could have on the wider business. Should we be concerned?

[Alaric]

as a HL customer (not in funds) I’m wondering what impact a successful lawsuit could have on the wider business. Should we be concerned?

HL Shareholders should perhaps be more concerned than customers, but if they did get hit for large sums in compensation, their prices might increase.

There are precedents that advisers can be liable to offer compensation for "misselling" but that hasn't been interpreted to include advice to buy investments that in retrospect perform poorly.

IF HL worded their recommendations correctly, it wasn't "advice" as defined by the FCA.

[Fluke]

There are precedents that advisers can be liable to offer compensation for "misselling" but that hasn't been interpreted to include advice to buy investments that in retrospect perform poorly.

IF HL worded their recommendations correctly, it wasn't "advice" as defined by the FCA.

I guess that's the boundary that the lawsuit will be seeking to test if it does go ahead, how thin is the dividing line between offering advice as defined by the FCA and 'encouraging' investors to buy certain funds over others by issuing their top 50 and top 150 'best buys'? If not to encourage/allay fears, what is their purpose?

[BrummieDave]

as a HL customer (not in funds) I’m wondering what impact a successful lawsuit could have on the wider business. Should we be concerned?

HL Shareholders should perhaps be more concerned than customers

They're already down 21% in the last 6 months.


I'm no fan of them based on both their retail and corporate services.

[ADrunkenMarcus]

Something worth watching:

https://www.youtube.com/watch?v=x_kF8oBjxLc

Best wishes

Mark.

[AleisterCrowley]

Something worth watching:

https://www.youtube.com/watch?v=x_kF8oBjxLc

Best wishes

Mark.

Enjoyed that, thanks for link!

[ADrunkenMarcus]

Enjoyed that, thanks for link!

It was interesting to see the apparent attempts he made in 2019 to try and get back towards the 2014-style portfolio of value, dividend paying blue chips. Too little, too late!

Best wishes

Mark.

[Spet0789]

do not understand and may well have got the wrong end of the stick but although I am sorry for all investors in Woodford funds, at the same time, how could it possibly be an income fund when so much was apparently in unquoted start ups?
Dod

We have a whole sector doing exactly that. VCTs invest in unquoted companies; most VCTs distribute high income[1] with the greater part coming from capital.

Indeed, a VCT manager - especially one of the VCT houses with a track record of taking over failing VCTs and salvaging what's left - would seem the ideal custodian for whatever remains of WPCT.

[1] OK, that's largely driven by tax: when divis are tax-free and discounts take the shine off capital values, large divis become all the more attractive.

There is no comparison though between VCT's and the supposed expertise of Woodford. People are aware that most VCT's are high risk, high return and as far as we know Woodford had no special expertise (or aspiration) in distributing capital profits (even were it allowed of OEICs) Woodford was a conventional although highly successful stockpicker when he was at Invesco and it was that expertise that I am sure that Pipsmum and the like thought that they were investing in, so with respect, I think that UE's comments are irrelevant to this discussion. They will certainly bring no comfort to those left holding the baby at LF Equity Income Fund.

Dod

Most importantly, VCTs are closed ended. Illiquid positions, whether good investments or rubbish, have no place in an open-ended, daily liquidity fund.

[UncleEbenezer]

Indeed, a VCT manager - especially one of the VCT houses with a track record of taking over failing VCTs and salvaging what's left - would seem the ideal custodian for whatever remains of WPCT.

Most importantly, VCTs are closed ended. Illiquid positions, whether good investments or rubbish, have no place in an open-ended, daily liquidity fund.

No argument with that.

Hence the reference to WPCT, which was never an open-ended fund, and did look somewhat like a VCT (nowadays a failing VCT) without the tax breaks.

[OhNoNotimAgain]

People think he changed when he left Invesco, this article says he did exactly the same, it was just fund pickers never bothered to do the research.


https://portfolio-adviser.com/peter-sle ... s-in-2011/