Three ways to avoid your fund manager "doing a Woodford"

published 8 July 2019

Neil Woodford © Shutterstock/Rex Features — Refocusing on income may not restore Woodford's investors' confidence

Investors in the Woodford Equity Income Fund learned this week that they're going to be stuck with the fund for a while longer. It was gated (closed to investors withdrawing or depositing money) a little more than a month ago, as concerns over poor performance and breaches of rules on the level of illiquid assets the portfolio can hold threatened to turn into a run on the fund. Manager Neil Woodford updated the market this week long story short, the fund is still shut.

Woodford's plan is to sell his illiquid holdings and invest in more liquid (ie, easier to buy and sell) FTSE 100 and FTSE 250 stocks. He knows that his only hope of retaining any money at all in the fund when he reopens it is for investors to feel confident that it won't be gated again, and also that he's returning to the value-oriented, income-focused style that made his name. Given that his big success trade long tobacco, avoid dotcoms is now in the distant past, we're not sure we'd give him the benefit of the doubt, and we suspect that lots of the investors still trapped in his fund, and still paying his fees, feel the same way.

The pity of it all is that, on paper, Woodford Investment Management offered many things we want to see from a "boutique" fund manager. For example, you could never mistake Woodford funds for "closet trackers" this was truly active management (sure, his investors would have been better off in a tracker, but that's another issue). So how can you avoid future Woodfords when you're looking for a good active manager?

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John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.