By Tom Winnifrith | Sunday 6 August 2017
This website has not joined in the general financial press adulation of fund manager Neil Woodford. But the rest of the 4th Estate has not held back in praising him as some sort of legend. This is of course not in any way related to the vast amount he spends on advertising his Woodford funds across Fleet Street. Oh no... the financial media can always be relied upon as beacons of integrity. But now even the MSM are starting to wake up and smell the coffee.
Past returns are no guarantee of future success and there is no doubt that in the increasingly distant past Woodford delivered stellar returns largely by sticking to good old fashioned value investing. But recent years have seen him showing an increasing tendency to delver into areas where he is, arguably, not the greatest living expert on this planet, such as biotech, and which are not, normally , viewed as value investments.
If a fund manager adopts a strategy of taking huge stakes of up to 29.9% in smaller companies it can pay off big time. Particularly if you have a name as Woodford does, and as mere mortals rush to buy up the free float to walk in the footsteps of the master. But when things go wrong at such stocks that can really hit the performance of your funds. And if folks start to see your stake not as a badge of honour but as a red flag and rush for the exit it becomes a vicious circle as you cannot get out. See the rise and fall of RAB Capital as a case study in this.
And that brings us to Woodford who finally has received a right old duffing up in the weekend press after what he admits has been a "fortnight from hell". But the real story is that Neil has had a dreadful three years and as that message starts to get through this could be a vicious circle.
Here is the Mail on Sunday on that fortnight from hell.
"Six of the biggest 12 companies in Mr Woodford’s portfolio experienced dramatic falls in value, resulting in more than £350m worth of losses. The poor performance follows a slew of bad news as AstraZeneca, the drugs giant, had its worst ever day of trading after a key cancer treatment trial disappointed. It left Mr Woodford nursing almost £150m worth of losses.
Tobacco companies Imperial and BAT, where Mr Woodford has stakes totalling almost £1.8bn, suffered after plans to cap nicotine content were published in the US, cutting the fund’s value by £125m. Trouble also came from smaller holdings, including the AA, Provident Financial, the FTSE 250 doorstep lender whose profits halved after it struggled to move to a new operating model, and Purplebricks, an online estate agent where, at 27pc, Mr Woodford is the largest investor, although the company has since mostly recovered.
He has also missed out on Rolls-Royce’s recovery after bailing out in December 2015.
Any fund manager can have one bad year. I offer Mark Slater as a case in point and hear him discuss that in his UK Investor presentation from 2017. The point is that Mark's longer term record is superb.
But Woodford's overall portfolio has now been underperforming the market for years and is almost nine percentage points below the industry average over a three-year timescale. That is, however you view it, just a shockingly bad record.
One weekend's press is bearable but it looks as if the worm is turning. having been pushing their poor readers to buy into the over-hyped Woodford funds since their £1.6 billion launch three years ago, perhaps the Deadwood Press is, at last, starting to show critical balance.
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