Woodford anyone?
Discussion
jakesmith said:
b
hstewie said:
hstewie said: I don't believe there is any talk of compensation for poor returns.
I believe that Heli123 implied that retail investors may have an expectation of compo for poor returs:Helicopter123 said:
As for retail investors, poor returns alone are never compensated.
If you were advised to invest in the same fund, then it has to be suitable for your personal circumstances. If you are paying for ongoing advise, then the fund has to remain suitable for you. If the advice is wrong, or badly documented, then you may have a claim against the advice, not the fund performance.
Woodford was once a high quality large cap fund manager, but his strategy changed over the years. Towards the end this was a higher risk fund, suitable for experienced investors with sufficient capacity for loss and a 5+ year investment horizon.
The industry knew it, and your IFA (if you used one) should have as well.
Helicopter123 said:
jakesmith said:
bhstewie said:
hstewie said: I don't believe there is any talk of compensation for poor returns.
I believe that Heli123 implied that retail investors may have an expectation of compo for poor returs:Helicopter123 said:
As for retail investors, poor returns alone are never compensated.
If you were advised to invest in the same fund, then it has to be suitable for your personal circumstances. If you are paying for ongoing advise, then the fund has to remain suitable for you. If the advice is wrong, or badly documented, then you may have a claim against the advice, not the fund performance.
Woodford was once a high quality large cap fund manager, but his strategy changed over the years. Towards the end this was a higher risk fund, suitable for experienced investors with sufficient capacity for loss and a 5+ year investment horizon.
The industry knew it, and your IFA (if you used one) should have as well.
Quite a lot of money has been lost and it’s probably enough to warrant law firms seeing a profit on the table and there are almost certainly going to be some IFAs who were overweight on Woodford and chilling out.
ringram said:
Different day, same story. Active Management = FAIL.
Passive index trackers FTW.
(Yes I got burned too
)
What it highlights is that investing in active management requires active monitoring. There are times in the market cycle when such funds offer excellent returns over passive but you need to be much more active in knowing and understanding when that is. Passive index trackers FTW.
(Yes I got burned too
)The problem from an IFA perspective is that popular brands of the moment are easier to sell and in fairness to the IFA they are in that nasty trap that during the periods when active management is producing the best returns their AUM will fall heavily if they aren’t at the party with everyone else.
How do you retain a client with passive funds at a time when the client is seeing much bigger returns being made in active funds. A big part of the overall problem is the timing mismatch between adviser and client. The advisor arguably has a twenty odd year outlook for the client’s funds but the client has much more of a here and now outlook that has always been there but in recent years turbocharged by the live, instant access to data that tends to encourage that old belief that the grass is greener elsewhere.
For me personally, the really important bit that has been revealed by this saga isn’t the risk of Star Managers as this was known and has been more of a reminder, the same with active over passive but rather the public reveal that spurious, minor exchanges have been being used to work around specific investment criteria. For starters even the most diligent investor simply would not have appreciated that this was going on and even if they did they would never have understood the ramifications. In fairness even IFAs would have struggled but the fund manager and their oversight board would have known, fully.
Apart from the most obvious risks associated with this ‘trick’ there is a seriously nefarious element within it that anyone who remembers OFEX and how it worked might understand.
Maybe the two largest OFEX stocks are the best examples with which to visualise this. Those stocks were Weetabix and Arsenal. These companies were listed on OFEX but the liquidity was so low that if you wanted to sell any stock your dealer had to phone the market maker who had the line to the company owner and ask what price he would buy this stock at, likewise, if you wanted to buy shares it was done at the price the owner wanted to pay. At this point it starts to become clear that these are markets where the share price is 100% controlled by the largest investor.
It doesn’t take a huge leap of reasoning to start seeing that this means a shareprice won’t go down unless one person wants it to and can be moved up whenever that person desires, should they desire to do so.
Well, if you are the entity who controls that price and if you are directly financially rewarded by seeing that price go up then this mechanism can have huge upsides. A fund for example suddenly has the ability to manipulate the price of a significant portion of its investments, it could deliver out performance on them yearbon year if desired. Even in slightly more liquid exchanges such as AIM there is a stabilising effect of having such a shareholder. Just by being there it can draw buyers in and stop sellers. Buffet owns 10% of company A, if Buffets in they Inwill get in or stay in etc.
This is not to say that such nefarious activity took place under Woodford but if he was getting around investment criteria this way then others will have been doing the same and some of those others will have taken advantage of the big reward that is available from being able to control the stock price.
I put a large chunk into Woodford at launch - 7 figures, based on the declared principle of the fund being equity income. The strategy here was to have the fund forming an income based element of my portfolio, which is somewhat larger. I also believed that there would be a large influx of cash into the Woodford funds, which he would invest in his preferred stocks, which would drive up their prices, which would generate a gain which would attract more cash... This all panned out in the first year and I watched it grow 20%. Then I watched it fall back. At that point I began to take an interest in the individual funds and noticed a disparity against the balance at launch, and I didn't like the new shape of the fund. I posted somewhat to this extent on this thread on the first couple of pages. At that point I bailed on the fund in my main investment pot (no tax wrapper), coming out slightly ahead. However I kept a chunk in my ISA pot - about £30k original investment.
I reckon I'll be lucky to get 50p in the £ for that come next January. I don't blame anyone for my investment choices, that was pure me. However I do blame:
- Woodford himself for substantially changing the nature of the fund, some shocking listed stock choices, and for investing in areas he had no track record in e.g. unlisted businesses.
- Woodford again for continuing to take fees after closing the fund.
- HL just because they kept on pimping the fund - this didn't affect me directly but the way they kept backing him when the signs became obvious doesn't sit well at all.
I read yesterday that investors are expected to pick up the costs of the 2 companies assigned to sell the listed and unlisted stocks to return cash. I'm not very happy about that - I would regard these as costs for administering the fund and I regard that the fees we continue to pay should cover that. However I fully expect that the substantial additional fees during windup will come from investors not the fund operators. I'd like to see some commentary on that from industry experts.
Overall it's going to cost me a chunk of cash but I regard it as a lucky escape given my exposure. Fortunately I wasn't asleep at the wheel - but I feel sorry for the investors who were. No pity at all for IFAs who might be on the hook now - I expect there will be a round of IFAs phoenixing themselves in the near future.
I reckon I'll be lucky to get 50p in the £ for that come next January. I don't blame anyone for my investment choices, that was pure me. However I do blame:
- Woodford himself for substantially changing the nature of the fund, some shocking listed stock choices, and for investing in areas he had no track record in e.g. unlisted businesses.
- Woodford again for continuing to take fees after closing the fund.
- HL just because they kept on pimping the fund - this didn't affect me directly but the way they kept backing him when the signs became obvious doesn't sit well at all.
I read yesterday that investors are expected to pick up the costs of the 2 companies assigned to sell the listed and unlisted stocks to return cash. I'm not very happy about that - I would regard these as costs for administering the fund and I regard that the fees we continue to pay should cover that. However I fully expect that the substantial additional fees during windup will come from investors not the fund operators. I'd like to see some commentary on that from industry experts.
Overall it's going to cost me a chunk of cash but I regard it as a lucky escape given my exposure. Fortunately I wasn't asleep at the wheel - but I feel sorry for the investors who were. No pity at all for IFAs who might be on the hook now - I expect there will be a round of IFAs phoenixing themselves in the near future.
What do people think will happen to the Patient Capital fund, now that Woodford's team are exiting?
Is it sufficiently attractive to be swallowed by another fund, or will a new management team be appointed to carry on with it...'business as usual'?
Or is there a risk that it will be liquidated too?
ETA: I've just read that '...JP Morgan analysts said they believed “an orderly wind-up is the best way forward”.'
Is it sufficiently attractive to be swallowed by another fund, or will a new management team be appointed to carry on with it...'business as usual'?
Or is there a risk that it will be liquidated too?
ETA: I've just read that '...JP Morgan analysts said they believed “an orderly wind-up is the best way forward”.'
Edited by V8mate on Thursday 17th October 12:05
Zoon said:
ringram said:
Different day, same story. Active Management = FAIL.
Passive index trackers FTW.
(Yes I got burned too )
Lifestrategy 80 has lost 2% in a couple of monthsPassive index trackers FTW.
(Yes I got burned too
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https://www.hl.co.uk/funds/fund-discounts,-prices-...
PERFORMANCE ANALYSIS
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A little hard to understand the research that has gone into recommending other investments ahead of thisnone if the reasoning isn’t made public?
Today's FT has three separate articles on Hargreaves Lansdown's "promotion" of Woodford funds. They draw attention to the question of clients investing without advice, of whom 17% rely on Favourite Fifty funds suggested by platforms.
They are careful not to imply any wrongdoing by HL while drawing attention to the potential conflict of interests that can arise where a fund is offering discounts through a particular platform at the same time that platform is actively promoting the fund. HL are reckoned to have made £41m in customer fees from people investing in Woodford.
About 300,000 HL clients are reckoned to be invested in Woodford, 133,000 of them investing directly and the remainder through HL's own branded funds.
They mention one client who invested £23,000 that's dropped to £8,000. Ouch.
The Rockin view: If you meet someone in a red cape who wears underpants outside their tights and looks like Superman he might not actually be able to fly.
Interestingly, FT says that since 2010 the amount invested in low cost Trackers has increased from 15% of the fund market to 25% of the fund market.
They are careful not to imply any wrongdoing by HL while drawing attention to the potential conflict of interests that can arise where a fund is offering discounts through a particular platform at the same time that platform is actively promoting the fund. HL are reckoned to have made £41m in customer fees from people investing in Woodford.
About 300,000 HL clients are reckoned to be invested in Woodford, 133,000 of them investing directly and the remainder through HL's own branded funds.
They mention one client who invested £23,000 that's dropped to £8,000. Ouch.
The Rockin view: If you meet someone in a red cape who wears underpants outside their tights and looks like Superman he might not actually be able to fly.
Interestingly, FT says that since 2010 the amount invested in low cost Trackers has increased from 15% of the fund market to 25% of the fund market.
rockin said:
Interestingly, FT says that since 2010 the amount invested in low cost Trackers has increased from 15% of the fund market to 25% of the fund market.
Not surprised - so much info on the internet that wasn't as easily found before. My IFAs firm (soon to be ex-IFA firm) has decide to ditch all active portfolios and move to passive/ETFs from November.Probably a daft question, but if everyone starts investing into passive/ETFs, can they become oversubscribed with too much money going into them?
Phooey said:
Probably a daft question, but if everyone starts investing into passive/ETFs, can they become oversubscribed with too much money going into them?
The risk is more that the higher the percentage of passive money in the market, the less efficient the market will be at absorbing information and incorporating it into share prices.Phooey said:
rockin said:
Interestingly, FT says that since 2010 the amount invested in low cost Trackers has increased from 15% of the fund market to 25% of the fund market.
Not surprised - so much info on the internet that wasn't as easily found before. My IFAs firm (soon to be ex-IFA firm) has decide to ditch all active portfolios and move to passive/ETFs from November.Probably a daft question, but if everyone starts investing into passive/ETFs, can they become oversubscribed with too much money going into them?
For me however, the bigger concern is how you execute on an ESG mandate using passives? I think over the coming decade this could put the break on passives.
DonkeyApple said:
ringram said:
Different day, same story. Active Management = FAIL.
Passive index trackers FTW.
(Yes I got burned too )
What it highlights is that investing in active management requires active monitoring. There are times in the market cycle when such funds offer excellent returns over passive but you need to be much more active in knowing and understanding when that is. Passive index trackers FTW.
(Yes I got burned too
)The problem from an IFA perspective is that popular brands of the moment are easier to sell and in fairness to the IFA they are in that nasty trap that during the periods when active management is producing the best returns their AUM will fall heavily if they aren’t at the party with everyone else.
How do you retain a client with passive funds at a time when the client is seeing much bigger returns being made in active funds. A big part of the overall problem is the timing mismatch between adviser and client. The advisor arguably has a twenty odd year outlook for the client’s funds but the client has much more of a here and now outlook that has always been there but in recent years turbocharged by the live, instant access to data that tends to encourage that old belief that the grass is greener elsewhere.
For me personally, the really important bit that has been revealed by this saga isn’t the risk of Star Managers as this was known and has been more of a reminder, the same with active over passive but rather the public reveal that spurious, minor exchanges have been being used to work around specific investment criteria. For starters even the most diligent investor simply would not have appreciated that this was going on and even if they did they would never have understood the ramifications. In fairness even IFAs would have struggled but the fund manager and their oversight board would have known, fully.
Apart from the most obvious risks associated with this ‘trick’ there is a seriously nefarious element within it that anyone who remembers OFEX and how it worked might understand.
Maybe the two largest OFEX stocks are the best examples with which to visualise this. Those stocks were Weetabix and Arsenal. These companies were listed on OFEX but the liquidity was so low that if you wanted to sell any stock your dealer had to phone the market maker who had the line to the company owner and ask what price he would buy this stock at, likewise, if you wanted to buy shares it was done at the price the owner wanted to pay. At this point it starts to become clear that these are markets where the share price is 100% controlled by the largest investor.
It doesn’t take a huge leap of reasoning to start seeing that this means a shareprice won’t go down unless one person wants it to and can be moved up whenever that person desires, should they desire to do so.
Well, if you are the entity who controls that price and if you are directly financially rewarded by seeing that price go up then this mechanism can have huge upsides. A fund for example suddenly has the ability to manipulate the price of a significant portion of its investments, it could deliver out performance on them yearbon year if desired. Even in slightly more liquid exchanges such as AIM there is a stabilising effect of having such a shareholder. Just by being there it can draw buyers in and stop sellers. Buffet owns 10% of company A, if Buffets in they Inwill get in or stay in etc.
This is not to say that such nefarious activity took place under Woodford but if he was getting around investment criteria this way then others will have been doing the same and some of those others will have taken advantage of the big reward that is available from being able to control the stock price.
Different managers, with differing styles, will outperform at different stages of any investment cycle. A blend of well researched, actively managed funds, adjusted when required should still outperform passives, in virtually all markets. Large cap US equity and AAA/AA debt being two areas where the lower fees of passives may hold sway.
Don't forget, if you held Woodford since the 1990s, and sold when he starting going off piste, he would have absolutely thrashed a UK tracker fund for you. That's over a 20 year time frame - the outperformance would have been astonishing.
Helicopter123 said:
Don't forget, if you held Woodford since the 1990s, and sold when he starting going off piste, he would have absolutely thrashed a UK tracker fund for you. That's over a 20 year time frame - the outperformance would have been astonishing.
Survivorship bias and monkeys writing Shakespeare come to mind. NickCQ said:
Phooey said:
Probably a daft question, but if everyone starts investing into passive/ETFs, can they become oversubscribed with too much money going into them?
The risk is more that the higher the percentage of passive money in the market, the less efficient the market will be at absorbing information and incorporating it into share prices.To Phooey - that money is coming from somewhere... namely active funds, so you would see stocks favoured by active managers punished and heavyweights of the indices benefiting. But it would be a slow process which implies limited impact.
NickCQ said:
Helicopter123 said:
Don't forget, if you held Woodford since the 1990s, and sold when he starting going off piste, he would have absolutely thrashed a UK tracker fund for you. That's over a 20 year time frame - the outperformance would have been astonishing.
Survivorship bias and monkeys writing Shakespeare come to mind. Afternoon DA. I'm in rant mode today so apologies - happy to talk offline 
https://en.wikipedia.org/wiki/Fama–French_th...
An active fund may appear to outperform a plain-Jane vanilla tracker, but it's possible to buy factor exposure cheaply should you want to do that - e.g.
https://www.hl.co.uk/shares/shares-search-results/...
Alpha is now beta. Factors, like the market, are unpredictable, so you can't really plan when, for example, the value premium is going to make a comeback.
DonkeyApple said:
There are times in the market cycle when such funds offer excellent returns over passive but you need to be much more active in knowing and understanding when that is.
Historically, alpha (excess risk adjusted returns) was believed to be commonplace. However, looking through a factor lens at this outperformance, be it the 3 factor model or additional factors such as momentum and quality, the outperformance tends to vanish, especially once adjusted for risk.https://en.wikipedia.org/wiki/Fama–French_th...
An active fund may appear to outperform a plain-Jane vanilla tracker, but it's possible to buy factor exposure cheaply should you want to do that - e.g.
https://www.hl.co.uk/shares/shares-search-results/...
Alpha is now beta. Factors, like the market, are unpredictable, so you can't really plan when, for example, the value premium is going to make a comeback.
DonkeyApple said:
The problem from an IFA perspective is that popular brands of the moment are easier to sell
Hopefully there are fewer advisers that sell the dream of outperformance. The States are ahead of usDonkeyApple said:
and in fairness to the IFA they are in that nasty trap that during the periods when active management is producing the best returns their AUM will fall heavily if they aren’t at the party with everyone else.
I'm not convinced. Twice in the last month I've heard someone say - I'm happy with my returns - I've got 15% over the last 3 years. They haven't felt the need to benchmark that against alternatives (probably just as well!)DonkeyApple said:
How do you retain a client with passive funds at a time when the client is seeing much bigger returns being made in active funds.
The only number they should care about is am I getting enough return to deliver the financial plan. Traditional advisers (majority) that don't engage in financial planning may struggle as returns are all they can be judged on.DonkeyApple said:
but the client has much more of a here and now outlook
I don't find that they do - once a retirement plan is built (all the way to >100) they see that short term is not important. NickCQ said:
Phooey said:
Probably a daft question, but if everyone starts investing into passive/ETFs, can they become oversubscribed with too much money going into them?
The risk is more that the higher the percentage of passive money in the market, the less efficient the market will be at absorbing information and incorporating it into share prices.https://en.wikipedia.org/wiki/Jim_Simons_(mathemat...
will ensure that markets are broadly efficient.
Helicopter123 said:
For me however, the bigger concern is how you execute on an ESG mandate using passives? I think over the coming decade this could put the break on passives.
If there is sufficient demand the passive providers will find a way. I fear this could turn into a marketing exercise for active managers as vanilla offerings are hit by passive alternatives.Gassing Station | Finance | Top of Page | What's New | My Stuff