Post by Fletchsmile on Feb 28, 2019 15:23:10 GMT 7
The question of what do do with Woodford? The wider question also being what to do with a fund that starts underperforming - particularly if previously one of your favourites
Barnett I cut a couple of days ago. I had a small holding in the investment trust EDIN. Should probably have cut sooner, but it was small and paying a nice 4% dividend so I was still in positive territory. Happy to say I don't own any of Invesco Perpetual, High Income or Strategic Income funds.
Reading and monitoring over the last couple of years - some quite different opinions. Between people who have lost faith in Woodford, and those who still vehemently support him.
I sold about 12% of my holding in 2018 (switched to Lindsell Train), and switched a further 25% of what remains (22% of the original holding) yesterday. So I've cut 34% or about 1/3.
After 20+ years of outperformance I've done well on, I figure I can take a couple of bad years, and still come out on top. So I'm prepared to give him some more time. But at the same time need to recognise the party may be over - hence the reduction.
Looking at his holdings, a couple of things strike me:
- Early on when I invested in the new Woodford Income fund, it resembled a lot more his old funds, and seemed to be more of a continuation. He also did well in his first year, being No.1. So much more playing to his strengths, expertise and experience
- Fast forward 4 years+. He now has about 10% in unquoted companies. A risky area to start with. Also not necessarily his area of expertise. Some of his calls have been poor in this area. He also seems to have 10% or so in international equities, which again is not necessarily his area of expertise. So crudely I could say maybe only 80% of his fund is what I thought was buying at the start. 20% unkown is stretching things.
- His stances are often contrarian with long term views, and in the past his picks have had periods of weakness. His views on the UK economy, and then Brexit, aren't necessarily consensus either. Brexit has definitely impacted markets. So will be interesting to see how Brexit plays out, and the UK generally. If his views turn out right. There's a good chance of him coming into favour again. Brexit seems to have magnified things. Good chance we will know month in the next few months, even if the March deadline gets kicked down the road. So having taken pain on this, it could be the wrong time to bail
- Fund performance also isn't just about the fund manager either. You have to wonder about Woodford Fund Management set up, eg resources, research skills etc etc is as good as Invesco (Perpetual) with its much longer pedigree. Equity analysts for example do a lot of groundwork producing analysis for the fund manager to base their decisions on. I'd also been with Perpetual/Invesco for couple of decades or so rather than 4 years with Woodford Group.
- Neil Woodford now effectively runs the fund management group rather than just a few funds, like when he was at Invesco/ Perpetual. So his role and scope is wider, which again raises questions. Maybe that also gives a wider perspective, but at the same time it likely results on him be unable to focus as narrowly on the key objective of managing his income fund (s)
- Probably worth understanding more how he has managed the shrinking in AUM. The fund is ball park under half what it was at its peak. If all 100% in UK equity income, I'd be less concerned, as UK equity income are liquid markets and he could in theory just reduce proportionate holdings, so it's less issue. Unfortunately though because of the way he's moved away from his core skills, he has that ball park 10% in unlisted companies. These are not easily sold. So a different ball game for a 100% liquid UK equity UT/OEIC vs a 90% liquid and 10% unlisted. He may likely have had to reduce holdings in liquid areas he might not have wanted to.
Oversimplifying: If 100 is highly liquid equity he could sell 50 when the fund halves and people want redemptions - losing only a few basis points in transaction fees. But if only 90 is liquid and 10 illiquid, he needs to sell that 50 out of 90 liquid and may be still stuck with 10 illiquid upsetting the balance 50/10 instead of 90/10. I believe ther is a cap of 10% on unlisted investment though, so likley he has had to sell some illiquid unlisted he might not have wanted to. Worsened also as when you're selling illiquid unlisetd investments its much easier to sell the good stuff than the bad. So a complicated and not ideal situation managng it. Sticking to his core 100% UK equities would have been preferable.
So a lot of new question marks in a fund that is no longer what it used to be, looking both back and forward.
Selling an underperforming fund is one thing and easier to be more ruthless. Selling a favourite top performer is trickier though. Last time I recall similar was with Anthony Bolton when he left his Fidelity Special Situations in around 2007
With Anthony Bolton I held Fidelity Special Situations for years, and did well out of his outperformance. This continued after he left for a couple of years, with the new guy doing OK. A big difference there though was that Bolton went into a completely new area where he had no track history - going into Fidelity China Special situations. Anyone living in Asia knows China is very different that his mainly UK background. That was a much easier call not to follow him. I stuck with the remaining fund for a while, but reduced exposure, and exited over time. A much cleaner cut.
On the other hand, Woodford went into a similar field (still mainly UK), and is still say 80% there in terms of fund holdings
Not as easy.
Where I stand now, is I've cut Woodford by about 1/3 from what I used to hold, and channelled that into LT instead which I feel is more stable / a safer call.
If I aggregate all my investments globally, he is no longer a top 10 holding and drops to about 12th place with about 2.4% of my portfolio. LT UK on the other hand is now a larger holding at 11th and 2.8%. I feel more comfortable not having so many eggs in Woodford's basket
Looks like the beginning of the end for him for my holdings. With all the changes I don't see myself adding to his fund, even if things start picking up. He won't be around for ever either so another reason to cut or not add.
Barnett I cut a couple of days ago. I had a small holding in the investment trust EDIN. Should probably have cut sooner, but it was small and paying a nice 4% dividend so I was still in positive territory. Happy to say I don't own any of Invesco Perpetual, High Income or Strategic Income funds.
Reading and monitoring over the last couple of years - some quite different opinions. Between people who have lost faith in Woodford, and those who still vehemently support him.
I sold about 12% of my holding in 2018 (switched to Lindsell Train), and switched a further 25% of what remains (22% of the original holding) yesterday. So I've cut 34% or about 1/3.
After 20+ years of outperformance I've done well on, I figure I can take a couple of bad years, and still come out on top. So I'm prepared to give him some more time. But at the same time need to recognise the party may be over - hence the reduction.
Looking at his holdings, a couple of things strike me:
- Early on when I invested in the new Woodford Income fund, it resembled a lot more his old funds, and seemed to be more of a continuation. He also did well in his first year, being No.1. So much more playing to his strengths, expertise and experience
- Fast forward 4 years+. He now has about 10% in unquoted companies. A risky area to start with. Also not necessarily his area of expertise. Some of his calls have been poor in this area. He also seems to have 10% or so in international equities, which again is not necessarily his area of expertise. So crudely I could say maybe only 80% of his fund is what I thought was buying at the start. 20% unkown is stretching things.
- His stances are often contrarian with long term views, and in the past his picks have had periods of weakness. His views on the UK economy, and then Brexit, aren't necessarily consensus either. Brexit has definitely impacted markets. So will be interesting to see how Brexit plays out, and the UK generally. If his views turn out right. There's a good chance of him coming into favour again. Brexit seems to have magnified things. Good chance we will know month in the next few months, even if the March deadline gets kicked down the road. So having taken pain on this, it could be the wrong time to bail
- Fund performance also isn't just about the fund manager either. You have to wonder about Woodford Fund Management set up, eg resources, research skills etc etc is as good as Invesco (Perpetual) with its much longer pedigree. Equity analysts for example do a lot of groundwork producing analysis for the fund manager to base their decisions on. I'd also been with Perpetual/Invesco for couple of decades or so rather than 4 years with Woodford Group.
- Neil Woodford now effectively runs the fund management group rather than just a few funds, like when he was at Invesco/ Perpetual. So his role and scope is wider, which again raises questions. Maybe that also gives a wider perspective, but at the same time it likely results on him be unable to focus as narrowly on the key objective of managing his income fund (s)
- Probably worth understanding more how he has managed the shrinking in AUM. The fund is ball park under half what it was at its peak. If all 100% in UK equity income, I'd be less concerned, as UK equity income are liquid markets and he could in theory just reduce proportionate holdings, so it's less issue. Unfortunately though because of the way he's moved away from his core skills, he has that ball park 10% in unlisted companies. These are not easily sold. So a different ball game for a 100% liquid UK equity UT/OEIC vs a 90% liquid and 10% unlisted. He may likely have had to reduce holdings in liquid areas he might not have wanted to.
Oversimplifying: If 100 is highly liquid equity he could sell 50 when the fund halves and people want redemptions - losing only a few basis points in transaction fees. But if only 90 is liquid and 10 illiquid, he needs to sell that 50 out of 90 liquid and may be still stuck with 10 illiquid upsetting the balance 50/10 instead of 90/10. I believe ther is a cap of 10% on unlisted investment though, so likley he has had to sell some illiquid unlisted he might not have wanted to. Worsened also as when you're selling illiquid unlisetd investments its much easier to sell the good stuff than the bad. So a complicated and not ideal situation managng it. Sticking to his core 100% UK equities would have been preferable.
- As I mentioned earlier in the thread, a couple of years back he's also getting older. Not to mention the world changing Unlikey he will be managing the fund 25 years from now anyway.
So a lot of new question marks in a fund that is no longer what it used to be, looking both back and forward.
Selling an underperforming fund is one thing and easier to be more ruthless. Selling a favourite top performer is trickier though. Last time I recall similar was with Anthony Bolton when he left his Fidelity Special Situations in around 2007
With Anthony Bolton I held Fidelity Special Situations for years, and did well out of his outperformance. This continued after he left for a couple of years, with the new guy doing OK. A big difference there though was that Bolton went into a completely new area where he had no track history - going into Fidelity China Special situations. Anyone living in Asia knows China is very different that his mainly UK background. That was a much easier call not to follow him. I stuck with the remaining fund for a while, but reduced exposure, and exited over time. A much cleaner cut.
On the other hand, Woodford went into a similar field (still mainly UK), and is still say 80% there in terms of fund holdings
Not as easy.
Where I stand now, is I've cut Woodford by about 1/3 from what I used to hold, and channelled that into LT instead which I feel is more stable / a safer call.
If I aggregate all my investments globally, he is no longer a top 10 holding and drops to about 12th place with about 2.4% of my portfolio. LT UK on the other hand is now a larger holding at 11th and 2.8%. I feel more comfortable not having so many eggs in Woodford's basket
Looks like the beginning of the end for him for my holdings. With all the changes I don't see myself adding to his fund, even if things start picking up. He won't be around for ever either so another reason to cut or not add.
Definitely not add. For now I've stuck 2/3s and twist 1/3
Stick or twist?