EDITOR'S LETTERMerryn Somerset Webb
Celebrity fund manager Neil Woodford is not having a good week. One of his better-known holdings – subprime lender Provident Financial – is in a terrible state. So much so, as Alistair Osborne notes in The Times, that despite being invested in a business that lends money to the financially illiterate and desperate at APRs of well over 500% (a business model that rarely fails), the company’s “shareholders are now almost as broke as the people [it] lends to”.
Woodford is “hugely disappointed” by the news. He will be adding that to a growing pile of news in which he is at least a little disappointed. Earlier this week another of his holdings, plastic-pallet producer RM2, came clean on what The Sunday Times called a “series of blunders by an all-star board of directors”. The firm raised £20m earlier this year and has burnt through £130m since listing three years ago, but is still unable to finance the volume of orders it expects over the next year. Perhaps, as the firm’s chairman says, the decision to take the firm public in the first place was “problematic and premature” – as was any decision to invest in it.
Next there is AstraZeneca, shares in which make up some 8% of Woodford’s Equity Income Fund and which fell 16% in a day at the end of July when a phase III cancer-treatment trial failed. Utilitywise was down 40% on a different day in July on a profit warning. Early-stage technology-firm backer Allied Minds is down from over 460p to under 200p so far this year on widening losses and a dodgy revenue-booking model. And Imperial Brands is down on the risk of tough anti-smoking rules in the US.
Woodford has an excellent long-term performance record – an average return of 8.6% over the last 17 years, according to Trustnet. But his recent performance isn’t fabulous: he has underperformed what Trustnet considers his “peer group composite” for the last seven, five and three years, with the last year not shaping up too well either (the Equity Income Fund is down 2.2% this year against a sector average rise of 10%).
None of this means that Woodford won’t outperform over the very long term – he is sticking to his guns with holdings he believes have long-term prospects and he knows that patience is usually a virtue in investing. But his troubles should serve as a reminder to investors that stock picking is difficult; that good publicity doesn’t guarantee good performance; and that fund investors should diversify across providers as much as across geographies and asset classes. Stick with one star manager, style or asset class and you might end up having to be rather more patient than you’d like.