If you are a regular reader of financial news, you will know that ‘star fund manager’, Neil Woodford, stopped investors withdrawing money out of his Woodford Equity Income Fund on 4th June, after the sum total of investment withdrawn from the fund reached a staggering £560m in less than four weeks. Kent County Council wanted to withdraw a further £263m but was unable to do so before trading was suspended.
Investment analysts have attributed this action to the significant poor performance of the fund over recent months. Neil Woodford was once the darling fund manager who could do no wrong. A few years ago, he was riding high when he left his employer, Invesco Perpetual, to set up his own company, Woodford Funds. With a reputation for having the midas touch, Woodford has built a huge following among both retail and institutional investors, many of whom followed him on his new venture.
Woodford is an active fund manager, using his knowledge, experience and intuition to buy and sell stocks that (he believes) will outperform and provide investors with solid return on investment. The challenge with this comes on a number of levels and no one is going to get it right all the time.
A 2016 study by S&P Dow Jones Indices indicated that about 90% of active stock managers failed to beat their index targets. In addition, studies have shown that if an active manager outperforms the market over a 12-month period, the chances of them doing so over the following year are slim. It doesn’t paint a very positive picture.
Because active investing means paying fund managers and research teams, as well as increased costs of buying and selling stocks, these costs can concurrently take significant chunks out of the overall returns of your portfolio. It is worth noting that, since the suspension of the fund, Woodford has continued to rake in an eye watering £100,000 a day from the £3.7 billion fund.
Many of you who are clients, or have been following us for a while, will know that we espouse an entirely different investment approach at Manse. We are of the opinion that trying to time the markets by actively selecting when to buy and sell or picking individual stocks that will outperform, is at best difficult to achieve, and at worst a dangerous game. We don’t pretend we can forecast what’s around the next corner or whether it’s a good time to buy or sell and we will always encourage our clients to ignore the damaging ‘noise’ seen and heard every day in the media. We work with our clients to coach and guide them, in the benefits of having low cost, globally diversified portfolios in line with their attitude to risk and which, most importantly, works for their long term financial plans.
You can learn more here about our evidence-based investing approach that we deliver to our clients, which helps to eliminate the aforementioned pitfalls of an active investment strategy.