Remember Woodford, and make sure you can cash out
Investing is full of risks. But not being able to sell your investment when you want to is one you shouldn't have to deal with, says Merryn Somerset Webb.
There are plenty of ways to lose money right now – you might be down 30% on fintech stocks; you may own the Nasdaq Golden Dragon China index (up a lot this week, but still down more than 60% in a year); or you may just have had rather too much of the one-time high-flying Scottish Mortgage Investment Trust in your portfolio – and be down 30% in the last six months. But for all the miseries of this kind of disaster, they do have an upside: you can sell and take what cash you have left any time you like (whether you should or not is a different conversation), and move on.
That is not the case if you were an investor in the Woodford Equity Income fund. The fund was suspended in June 2019. Its manager, Neil Woodford (once considered the UK’s best fund manager), had used it to buy a pile of small, illiquid stocks (which did not produce an income!) that he was then unable to sell in a hurry when his lousy performance prompted investors to demand their money back.
Always have an escape route
The idea was that the suspension would give Link – who fired Woodford and took over managing the fund – breathing space to sell the assets and return the cash. Three years later it is still at it. It’s sold £2.5bn-worth of shares, but the final stocks still aren’t sold; investors haven’t seen a penny for 15 months and there is no obvious end-date. Sales will continue, says Link, but “at a pace which seeks to achieve the best outcome for investors”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Link’s definition of “best” may differ from ours. Best would have been intervening before the fund was so obviously in trouble back in 2019. Best after that would have been selling the first lot of assets at prices closer to their actual value (that it did not was all too plain in the prices the first round of buyers got when they flipped them on). Best after that would have been finding a way to sell the leftovers into the private-equity and small-cap growth euphoria at the end of last year.
Good luck getting a nice price (they are valued at £141m) now – as Link is honest enough to say, thanks to the “nature and maturity of some of the remaining assets their valuations may fall as well as rise”. Even if they do not fall, investors will have received back £1bn less in total than the supposed value of the fund the day it was suspended. Finally I think that, Link aside, we can all agree that “best” should surely mean bringing the whole sorry saga to an end in under three and a half years.
The only positive I can pull from all this is that the regular, grim updates from Link act as a constant reminder that there are two kinds of risk in investing. The first is the one most of us are dealing with now (volatile markets) – no one is to blame for that (except central bankers – we will return to that another day). The second is getting caught in the wrong structure and not being able to get out. Woodford offered the best example of how careful you have to be (he’ll be pleased to have been best at something), but we’ve seen it again in the last two weeks: many funds with Russian exposure have been frozen. We have long favoured investment trusts over open-ended funds – the ability to sell at any time is one big reason why. I’m not thrilled to have JPMorgan Russian Securities in my portfolio (it is down 86% in a month). But I am at least pleased to have the freedom to sell the remaining 15% without any input from Link.
-
NS&I cuts interest rates on 8 savings accountsNS&I will now offer less attractive interest rates for customers wishing to lock their savings away to grow for one, two, three or five years.
-
Investors will reap long-term rewards from UK equitiesOpinion Nick Train, portfolio manager, Finsbury Growth & Income Trust, highlights three UK equities where he’d put his money
-
'Investors will reap long-term rewards from being bullish on UK equities'
Opinion Nick Train, portfolio manager, Finsbury Growth & Income Trust, highlights three UK equities where he’d put his money
-
The graphene revolution is progressing slowly but surely – how to investEnthusiasts thought the discovery that graphene, a form of carbon, could be extracted from graphite would change the world. They might've been early, not wrong.
-
A strong year for dividend hero Murray International – can it continue its winning streak?Murray International has been the best-performing global equity trust over the past 12 months, says Max King
-
The shape of yields to comeCentral banks are likely to buy up short-term bonds to keep debt costs down for governments
-
The sad decline of investment clubs – and what comes nextOpinion Financial regulation and rising costs are killing off investment clubs that once used to be an enjoyable hobby, says David Prosser
-
How to profit from the UK leisure sector in 2026The UK leisure sector had a straitened few years but now have cash in the bank and are ready to splurge. The sector is best placed to profit
-
Who won the streaming wars?The battle of the TV and film streaming giants for dominance looks to be entering a final phase. The likely winner may surprise you, says Simon Wilson
-
'Investors should expect a good year for equities'Opinion The economy is positive, and investors are still cautious, says Max King
