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Weekend press review: Woodford and the £1.4bn sell-off

The Sunday Telegraph Money section is asking whether DIY investors will pay the price for pension protections brought about by a recent ruling and related changes at the FCA and FOS. As the Telegraph reports, the case for more consumer protection has gained traction after a recent decision in the High Court. Berkeley Burke, a Sipp firm, which argued that its customers paid it to carry out their wishes and not to judge the merits of their investment choices, absolving it of liability for their losses. The court disagreed. It ruled that the Sipp firm had been duty-bound to ensure that a risky Cambodian biofuel scheme called Sustainable AgroEnergy was suitable for a pension or else refuse the customer’s £29,000 investment. Having failed to do so, it must repay his loss.  This has implications for providers as well as investors. The article says that according to critics, an FCA statement shortly after the Berkeley Burke decision suddenly made 10 years of Sipp investments open to challenge by referring to obligations that Sipp firms should have met since April 2007 but that have not, until now, been strictly enforced. Interesting times.

“Woodford forced into £1.4bn sell off.” Ouch. This is the rather striking headline for the leading front page article in The Sunday Times Business section this week. Investors with holdings in Woodford funds would struggle to miss this and similarly could be forgiven for feeling just a tad concerned as to whether their money was in the right hands or not. The detail? Ok – we’ll keep it simple. It’s about the underlying sales from his funds that have been made in order to satisfy increasing numbers of redemptions – and, according to Woodford Investment Management, “ to ensure that the portfolio remains a representation of what Neil believes are the greatest valuation opportunities”. The article reports that £1.4bn has been sold since the end of March – an estimate based on the average share price on the day filings were lodged with the LSE.  However, the company is reported as saying that redemptions had fallen to their lowest level for a year last month – a sign that performance had shown some “very early” signs of turning around. The article extends its comment to the impact that large fund managers such as Woodford, can have on smaller companies where they build a big stake and have to sell in a hurry thereby causing potentially large share price movements.

The Sunday Times Money section continues its laudable campaign for pension equality between the sexes in its lead story again this week.  Its focus is not just about the gender pay gap, rather it’s a broader approach taking into account women’s family and caring responsibilities and how these impact pension provision and entitlement. This week ST Money looks at three case studies of sixty-something women whose pension situations have ended up very differently. There isn’t anything here that will be news to professional advisers, but it seems to be striking a chord with ST female readers from whom, the paper reports, it has received a “flood of responses”.

Always a great read, Ian Cowie’s Personal Account column this week has the US economy and stockmarket in its gaze. Cowie is always a protagonist for investors holding a globally diversified portfolio. This week he reflects on the “surprisingly unsurprising” results of the US mid-term elections which saw the Democrats making gains in the House of Representatives while the Republicans did in the Senate. The nub of the article is that whether you like him or loathe him, since Trump took office on 8 November 2016, the markets have responded well. The Dow Jones index is up by 45% and the S&P 500 by 33% – compared to just 6% on the FTSE 100. He uses the article to bring balance to much of the sentiment which is reporting that US equities are overvalued by reminding readers of some lessons from history. In particular, he highlights the fact that during the 12 months following mid-term votes, share prices tend to increase and that investors should not ignore the opportunities which the US market presents. As he rather nicely sums it up in his close “It makes sense to gain adequate exposure to the world’s biggest stock markets because, eventually, economic reality will trump political vanity.”

Neil Woodford is very much under the spotlight in the Financial Mail on Sunday too. Jeff Prestridge interviews the fund manager about his current situation and where he sees things going from here. The article does reveal Woodford’s feelings of being somewhat unloved. As Prestridge details “…targeted by a hostile press, abandoned by many investors (and some financial advisers) and victimised by hedge fund managers who have shorted some of his funds’ holdings – betting on them falling in price – knowing Woodford can do little about it but suck his thumb.”

However, turning to matters of performance, Woodford explains that he sees strong parallels between March 2000 and now. Eighteen years ago, many company valuations had become grossly inflated, unrealistically so, resulting in a stock market shakeout lasting two years and numerous internet-based companies going out of business. He refused to hold such stocks and to some extent, made his name on the back of that stance.

Woodford is clearly standing his ground now too. In the interview he reminds Prestridge of his views that a number of big stocks both here in the UK and the United States have seen their valuations driven up to unsustainable levels. They include the so-called ‘fangs’ – Facebook, Amazon, Netflix and Google (now Alphabet). At some stage – and it is already happening – the share prices of these companies will correct and normality will prevail. Woodford Investment Management, he says, will then come good.

Momentum investing, he says, is to blame – buying shares that have already performed well – on the basis they will continue to do so. Instead, his approach is all about “analysing companies and assessing how good they are and what value they offer. Will they be winners or losers over the next three to five years? That is what I call active, disciplined and sensible fund management. An art I am afraid that is being squeezed out. Flawed? Yes, because you can never get everything right as a fund manager. But long term it works.”

As Prestridge highlights, rather than tech stocks, Woodford is banking on investments in companies that are ‘woven into the fabric of the UK economy’ – housebuilders, building material suppliers and financial companies. The likes of Taylor Wimpey, Barratt Developments, Crest Nicholson and Provident Financial. All top 20 holdings in both Equity Income and Income Focus.

In the article Woodford points out that last month fund redemptions were at their lowest level for the year to date. It is clear that he is resilient and determined to improve investment returns.

The relative performance of Equity Income against its peers has also improved in the past three months and even Patient Capital has just won back its place in the FTSE 250 Index.

So what is Prestridge’s view? He concludes this way: “I think Woodford will come good again. He’s a street fighter who does not like to get beaten. He triumphed in 2000 and I am sure he will again in the near future.” There you go then!

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