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Catch A Falling Star

  • By Liam Brennan

What next for investors in Woodford funds? Richard Harvey reflects on the fall from grace of “star” fund manager Neil Woodford and why stories of his demise might just be a little bit premature


Nobody likes to admit they enjoy a bit of ‘schadenfreude’ – getting a buzz over someone else’s misfortune – but there may well be some of that happening within a few corners of the investment advice community right now.

The subject of their sublimated glee is Neil Woodford, once lauded by investors with the same ardour as tribesmen worshipping an Inca god in an Indiana Jones movie.

You won’t fail to have noticed that Neil, who did a cracking job for his investors for many years during his days as a fund manager at Invesco Perpetual, is now on the end of a media larruping after a period of underperformance of his Woodford funds.

A descent from grace like this poses an inevitable question – how can someone who has been so spectacularly successful suddenly fall off the proverbial cliff?

According to some reports, his flagship Woodford Equity Income fund has plummeted in size from £10bn to less than £5bn. This is following a prolonged period of redemptions from the fund and a decision by Woodford, some poor investment decisions and also his choice to back smaller and mid- cap stocks in preference to the older but-goody – and perhaps safer bets – like Astra Zeneca and GlaxoSmithKlilne.

A descent from grace like this poses an inevitable question – how can someone who has been so spectacularly successful suddenly fall off the proverbial cliff?

Football crazy

It’s precisely the thought which ran through the minds of Fulham Football Club fans recently. Having started the season badly, the club hired as their new manager Claudio Ranieri, the man who piloted Leicester City to a spectacular Premier League title a couple of years ago, and who was thus deemed a ‘no risk’ appointment by Fulham’s owners.

Fast forward three months, and Claudio – or ‘Clownio’ as he was referred to by then – was ushered to the exit after a disastrous run of results, contributing to a season which one supporter pithily described as “a clusterf*** of an omnishambles”.

Naturally, there are thousands of fans of rival teams who wallowed in schadenfreude at the discomfiture of a club which had blown £100m on players in preparation for the season, all to minimal effect.

But football followers tend to believe there is always a bright dawn after a dark night, and that resurrection is always just a season or two away.

Zipper de-do-dah

But not in the case of others who have fallen from grace. Those with ‘a zipper problem’, as the Americans so charmingly put it, find it more difficult than most, and it seems unlikely that Bill Cosby will ever return to anodyne family fun TV shows.

On the other hand, Hugh Grant has proved that a brief encounter with a loose lady in the back seat of a limo is not always terminal in career terms (even if a number of newspaper editors would wish otherwise).

Down, down, deeper and down

So those sniggering at Neil Woodford’s comeuppance should maybe pause to consider that the man might be suffering at the moment, but that he’s shown a remarkable ability to emerge from financial storms in the past and with a smile on his face.

Right now, he’s in distinguished company. Bestinvest recently issued a chart of “serial underperforming investment funds”, tracking performance over three years. Woodford Equity Income was right up there, but so too were funds from heavy-hitters such as Jupiter, UBS, Invesco and Standard Life.

Those readers with longer-term memories might recall that 20 years ago Woodford refused to join the stampede of those investing in tech stocks riding the fashion for anything with a dotcom suffix . And we all know how quickly that boom turned to bust.

Similarly, and perhaps controversially in many investors’ view, he largely avoided buying bank shares in the early 2000s. So who looked a smart cookie when the financial crisis of 2008 came along?

Those readers with longer-term memories might recall that 20 years ago Woodford refused to join the stampede of those investing in tech stocks riding the fashion for anything with a dotcom suffix

Redemption is always at hand. So good luck Neil Woodford. Well done Hugh Grant. And better luck next season Fulham – because Grant is a fan (and, if you hadn’t already guessed, so am I!).

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