Investment Insight : Woodford’s Woes

Smarter Investing

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Neil Woodford – one of the UK’s best known fund managers – has recently had to suspend trading in the Woodford Equity Income Fund. What are the causes and lessons of his ‘dark and terrible moment’ as it has been described? Some investors are claiming not to know how the fund was invested, which is surprising given his well-known contrarian approach and his transparent strategy for allocating capital to smaller firms, alongside large cap stocks. Woodford, investors, best-buy lists, potential conflicts of interest, the press, and regulators all share some of the blame.

The key lesson to be learned is that active management adds additional layers of risk including stock concentration, tracking error, liquidity and manager strategy risk to portfolios. In a world where markets work pretty well and manager fees are high relative to likely skill, one should question whether these risks are worth taking. Woodford provides a salutary reminder of the challenges and dangers of doing so.

For a more detailed independent review on what went wrong please contact duncan.glassey@wealthflow.com

 

Disclosure: Wealthflow LLP does not believe in high concentration active management; the risks are too high and the associated management fees excessive and unjustifiable in our opinion.

Duncan R Glassey
Senior Partner – Wealthflow LLP

duncan.glassey@wealthflow.com

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.