His crash has been hard. When the man once dubbed the UK’s answer to Warren Buffett decided to go it alone, investors stampeded to get a slice of the action, confident that he would repeat the success at Invesco Perpetual that had earned him his soubriquet “the man who made us all richer”. Such was his popularity that he felt no need to respond to our many requests for a conversation – now he is reduced to producing humbling videos to investors explaining why they can’t get their money out.
Those investors have contributed heavily to the tens of millions in fees earned by Mr Woodford’s fund management group over the past three years, reinforcing one of the key criticisms levelled at active managers like him – and distributors like Hargreaves Lansdown which have taken millions more. While the industry has been bringing down fees in response to the competitive threat of ultra-cheap passive funds, many argue that they are still too high when set against the performance they deliver. The suspended fund’s massive underperformance of its benchmark over the past two years appears to offer a case in point.
Yet even a massive reduction in fees would not be enough to fully silence active’s growing army of critics, in particular their trenchantly held belief that active management simply cannot consistently beat the market year after year. If this is true – and there is evidence to suggest the claim is not without substance – then should we be worried about other star managers favoured by private investors, such as Nick Train or Terry Smith? They’ve continued to perform strongly as Mr Woodford’s star has faded, but we would be wise to remember that Mr Woodford’s ill-fated fund also performed very well over its first three years.
That said, it looks as though Mr Woodford’s problems are idiosyncratic, and self-inflicted – in particular, style shifts seemingly not in keeping with income strategies, including a heavy move into unquoted investments that has created serious liquidity issues and forced Mr Woodford to undertake unusual inter-group transactions that have unnerved investors and led to questions over transparency. And as the example of Kier – a recent IC sell tip – showed this week, he has been increasingly prone to hang on to bad shares for too long. In any case, something has gone very wrong, and it is hard to imagine how Mr Woodford can recover from what has become a dog’s breakfast – or, perhaps more accurately, a breakfast of dogs.
