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”.
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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.
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