ROCKET MAN

TODAY’S BLOG

ROCKET MAN

I suspect that you may have noticed that there is a new movie about Elton John – Rocket Man. As I grapple with the temptation to provide my own take on another film, attempting to find any tenuous link to life choices and money, my mind turned to a different rocket man. Whilst we are only days away from the 50th anniversary of the moon landing, I don’t mean those rocket men either. No, rather it is time to talk about Mr Neil Woodford…

Let me begin by saying that I do not know Mr Woodford, I have nothing to say against him personally. He ran the hugely successful Invesco Perpetual Income funds out of Henley upon Thames for many years, before leaving them with his departure announced in October 2013.  He went on to start his own asset management company Woodford Investment Management. He did a wonderful job at Invesco Perpetual. Most investors that owned holdings in his fund would or should have been very happy with the result.

SOLOMONS IFA BLOG - ROCKET MAN

Science Lessons

One of the few advantages of age is that gradually, lessons are learned, experience gained and sometimes there is the possibility of a modicum of wisdom. In the past I believed that fund managers were stars and their performance could be followed. Today I still believe that this is possible, but it is highly unlikely to happen. Fund Managers are often very clever, thoughtful people, but their ability to constantly beat the market or their peers is unsustainable. There is ample evidence to support this view if you can cut through the marketing and noise of “hot funds”, “Best Buys” and the latest “great idea”.

The battle for your money rages fiercely, huge marketing campaigns combined with an information culture that turns anyone into an expert and promotes the lie that investing is easy. Indeed I might argue that the financial services industry is supported by a media the prop up the belief that the improbable is highly likely. It simply fails any rational testing, if you are prepared to check your conditioning at the door. In practice, you might only need to ask yourself who is actually getting rich from your investment? However the obvious is an uncomfortable truth, so we all ignore it, well… most do until they see the light.

Epiphany

My gradual epiphany happened over the last 15 years, (remember I set up the firm 20 years ago and had been advising clients since ’91). I was familiar with market-index tracker funds, I even arranged them for clients in the 1990s (for example the Gartmore UK Index which was opened in 1989) but I, just like many (most) wanted to believe that intelligence and skill could be combined in a way that provided consistently better returns. Advisers and investors were (and still are) bombarded by information that shows “successful” short-term performance. My in-box, trade press, and conference bag are stuffed full with it.

In practice you will be investing for decades….”So I will change my investments” I hear you cry… well maybe, but that would acknowledge other detrimental investor behaviours – attempting to time the market, knowing when to get in or out of funds that are performing well or not….you may get lucky a couple of times, but frankly that is all that it would be luck – not skill. Luck is not a good strategy for your financial plan. In any event the two largest players providing advice and funds to investors only dropped the Woodford fund this week. They are far better resourced for detailed research and personal meetings with the Fund Managers…yet to absolutely no avail. You have heard of them both, nice brochures and websites.

Whilst I believe outperformance from skill is “possible”, I now recognise it as unlikely and blogged as much in 2014 implying that following a star manager is not a good investment strategy. I came to this conclusion later than some, earlier than many. I am neither genius, nor fool (I hope). In January 2010 I cited how his funds had suffered some lacklustre performance in 2009 after delivering some good returns, acknowledging that we had been users of his Invesco funds, which had delivered good results. At the time I was still advising clients to retain the Invesco fund. That changed, but not to Woodford – to a low cost, investment fund.

Number Crunching

Yesterday his flagship Equity Income fund, which was launched in June 2014 was suspended, almost precisely at the 5th anniversary. This was primarily because investors were turning away from the fund in droves. Performance has been taking a nose-dive since June 2017.

None of our clients hold the fund. None, nada – because for reasons stated. We use low cost investments and not the more expensive “actively managed” funds like this one, which typically charge between 0.65% to 1.50% depending on the fund share class. We tend to create portfolios with investment costs of around 0.3% – there or there abouts.

I do not wish Woodford anything other than success. His rocket-like performance earned at Invesco now seems to have really lost favour. Fund suspension is really something that no manager wishes to do. It does protect those remaining investors within the fund, but invariably signals the end of shelf life. The reputational damage has now been done and for a fund that relies primarily upon the manager, this is difficult to regain.

Star Gazing

This is a lesson that few learn. Over the years I have seen star managers rise and fall again and again. Yet investors will forget. They will see a new star performer and ask why we don’t hold anything in his or her fund. Sometimes this may turn into a plea to buy a fund, it isn’t my money – it’s yours, so do as you please with it, but I will not put my name to investment advice that I do not believe. Part of my job is to stop you making daft financial decisions. It isn’t rocket science…but you can follow the yellow brick road if you like, but the only records you should pay attention to are the musical type… on which note here, is the trailer for the rather good “Rocket Man”.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

ROCKET MAN2023-12-01T12:17:22+00:00

Skandia Close OId Woodford Funds

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Skandia Close Former Woodford Funds

Its all change at Skandia – soon to be renamed Old Mutual Wealth. On Friday they (OMW) took action which is rather unusual. Funds (INVESCO High Income and INVESCO Income) that had been previously run by one of the most successful fund managers (Neil Woodford) were closed. This follows the exit by Neil Woodford from INVESCO Perpetual who then formed his own investment company (Woodford)… genius name right? Anyhow, Skandia have argued that a lot of investors and advisers are following him getting out of his old funds at INVESCO and moving to his new ones….well his new one (Woodford Equity Income Fund). This is undeniably true. There are costs involved in running the new funds (naturally) and keeping the old ones running (also… naturally). What is exposed in practice is the lack of extra juice squeezed from the annual management charge from INVESCO by Skandia.starmanposter

The CEO of Old Mutual Wealth (Paul Feeney) believes that they “have been between a rock and a hard place with regards to how we manage Neil Woodford’s resignation from these funds and the demand we have seen to move investors into his new offering. We have discretion over these assets being in our life book and therefore have a fiduciary duty to do what we believe is the right thing”. He goes on to state “Whilst theoretically we could have kept the funds open, the demand we have seen from advisers for Woodford would have resulted in even greater redemptions from the INVESCO Perpetual funds. This would have resulted in the TER of the funds increasing and ultimately the Skandia funds becoming untenable”.

(TER is the Total Expense Ratio…or charges in plain English).

So what?

Well, the wisdom of this action will only be seen in hindsight (not a great comfort) and my main objection is the lack of notice. Those that have been happily using the INVESCO Funds concerned (not all INVESCO funds) are being forced to change. This does rather create the impression of selling at a low point and perhaps buying at a high point. The truth is we won’t know until much later. However, what it does expose once again is the problem with “Star Managers” who are a rarity. The only UK Fund Manager more well-known is probably Anthony Bolton, who ran the Fidelity Special Situations Fund very successfully for many years then retired, only to find retirement somewhat unsatisfactory, (I presume) so launched a Chinese fund… which has, not met with the same success. Unlike Mr Bolton, Neil Woodford is sticking with what he knows and can avoid blaming the Chinese for their lack of corporate governance*. This all stems from the belief that investment out-performance is repeatable and sustainable. I don’t subscribe to such a belief when it comes to the long-term (which is the only worthwhile measure of “repeatable” or “sustainable”).

In practice this has exposed the problem of chasing the curve, hoping that because of the past, the future will yield similar results. It is pretty difficult to dissuade most investors from this sort of “top of the pops” behaviour given the tide of marketing and “evidence” of out-performance (by which I mean rather meaningless charts, designed to show certain events in their best possible light).

Is this the best way to invest? Yes if you are in first and out first…but to do that requires courage, conviction and perhaps some inside knowledge, most lack the first two sufficiently and the last is illegal. For those impacted by this move, we will be in touch (as will Skandia… sorry I mean Old Mutual Wealth).

Dominic Thomas

* CityWire 2014-04-01 “The Chinese Are Great Liars

Skandia Close OId Woodford Funds2023-12-01T12:39:28+00:00

Neil Woodford to leave INVESCO Perpetual

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It has been announced this lunchtime that one of the best known and most successful Fund Managers, Neil Woodford has announced his departure from INVESCO Perpetual by April next year. The media will almost certainly be awash with this over the next few days as Neil runs some of the largest and most successful funds in the UK. He has been an excellent servant of both INVESCO and investors, delivering some remarkable returns over a 25 year career.

neil-woodford

That awkward succession thing…

The funds that he runs from Henley will be carefully handed over to Mark Barnett and Neil will oversee the process. This is likely to cause an exodus from the funds, not due to anything that Mark Barnett has done, or even INVESCO Perpetual, but investors that like active fund management, tend to follow the successful managers and that includes following them out the door. It will be interesting to see what happens to four key funds in particular.

  1. Invesco Perpetual Income Fund
  2. Invesco Perpetual High Income Fund
  3. Invesco Perpetual Distribution Fund
  4. Invesco Perpetual Monthly Income Plus Fund

Take stock and review

Whatever happens, I wish Neil a very happy… retirement (I’m not certain that he is, rumour has it that he will be starting his own fund group, who knows!) but he has certainly done a good job over many years. Naturally, anyone with holdings in any of the funds run by him will wish to give thought to how this may impact future decisions to hold the funds.

Dominic Thomas: Solomons IFA

Neil Woodford to leave INVESCO Perpetual2023-12-01T12:38:27+00:00
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