Neil Woodford and Story Telling

Neil Woodford is one of the UK’s best-known fund managers. Thousands and thousands or ordinary investors, as well as some local authority pension funds, have trusted him with their cash to decide which shares to buy and which to sell.

He earned his reputation over 25 years at Invesco Perpetual and set out on his own in 2014. His previous record meant lots of money followed him and his eponymous Woodford Equity Income Fund managed over £10 billion of assets at one point.

The star manager status was promoted by, amongst other, Hargreaves Lansdown who listed his fund in its Wealth 50 list of favourite funds.

However, as has happened numerous times to others before him, performance didn’t live up to the hype with notable poor investments coming from the assumption of a smooth Brexit and exposure to Provident Financial, Kier and Purple Bricks. As the fund fell in value, people quite rightly wanted their money back.

This isn’t usually a problem, but the fund’s issues were compounded by a growing amount of unlisted companies whose shares are illiquid, meaning they are expensive and time-consuming to sell. The fact that they are invariably high risk is another matter altogether.

The exodus grew to such magnitude that the fund couldn’t turn investments into cash quickly enough and suspended withdrawals. The fund has been suspended for a month and, as I write, this has been extended for another month.

Woodford’s reputation is in tatters, I wonder if he will ever recover from this.

But why do we have star fund managers and why do so many of them eventually fall by the wayside?

I think it’s all down to story-telling.

We are hard-wired from eons of evolution to like stories and Woodford’s rise, reputation and market beating returns was a great story. Journalists need stories and this one filled many column inches for them. The law of averages often means people like Woodford sooner or later end up making duff investment choices, they simply can’t keep making decent ones for ever.

Stories about other ways to invest just aren’t as interesting, they simply don’t grab attention in the same way. And this is where Chatfield comes in.

We have never recommended any of Woodford’s funds. For part of our investment approach we advocate a far more dull and boring investment strategy of buying the whole market, reinvesting your dividends, and sitting still as much as possible. This way of investing doesn’t fund press advertising and journalists can’t spin good stories regularly enough to keep investors entertained week after week.

We focus on making good long-term financial decisions year after year after year. Having a robust investment portfolio is just an element of that, albeit still an important one.

The story is quite as interesting but it’s a better investment outcome!