Most people who have been watching TV, browsing social media sites or reading the newspapers will no doubt have seen the name of Neil Woodford appear over the last few weeks. For an investment fund manager, even one with legions of followers, to appear so prominently is quite unusual. Mr Woodford who had an excellent reputation at his former employer has been faced with criticism and negative comment due to the suspension of one of his investment funds, namely the Woodford Equity Income Fund. The purpose of this article is not to dwell on what led up to this or the position since the fund was suspended, but simply to put this into context with regard to Chancellor Financial Management’s services.
Many clients on “direct to consumer” platforms have chosen to invest in this fund which has until very recently appeared on lists of funds that investors may wish to consider. According to press reports, the assets in the fund have seen many redemptions and the size of the fund falling from over £10 billion at its peak to around £3 billion at the date of the suspension.
As many of our regular readers and clients are fully aware, Chancellor do not pick or recommend individual collective investment funds such as the Woodford Equity Income Fund although we do have clients who have continued to hold the fund after transferring their investments via ourselves from a previous adviser and who wished to retain this fund – possibly due to Mr Woodford’s reputation and his performance in years gone by. As financial advisers we are required to stress that past performance is not necessarily a reliable guide to future performance! Certainly in this case, that regulatory warning is very true.
Here at Chancellor we have over £100,000,000 of client funds invested with a panel of Discretionary Fund Managers which typically work well where the client has funds of over £250,000 to invest. Whilst Chancellor are responsible for the advice and the risk profiling, the day to day management of the fund is delegated to a major investment house who have discretion as to which assets to hold in a client’s investment account. These fund managers do take a very active role in the management of the money and are able to react very quickly to any bad news. The individual investment manager who looks after the client’s portfolio on a day-to-day basis has extensive resources in terms of research on the individual investment funds that they hold. Choosing whether to hold or retain an individual collective investment such as the Woodford Equity Income Fund can depend on many factors, but we are not aware of this fund being held by any of our clients who has opted for Discretionary Fund Management. One of the other attractions of the Chancellor services is that we do not rely on the benchmarks provided by the fund managers as to their levels of performance. Chancellor have invested a significant amount in a monitoring system that highlights any periods of underperformance or high volatility and where the fund manager is failing to “add value” for the fees that they are charging.
We recently published an article in our regular E-news about the concept of passive investment strategies which are being used by some of our clients. This article was published by us on 27th June 2018 entitled “Active and Passive Investments – don’t bank on a binary decision”. This focussed on the recurring debate over passive versus active investments. The first bullet point highlighted that one of the benefits of a passive approach is lower fees and that “the same fine grain analysis of individual securities is unnecessary and computers complete investments task automatically without sentiment or applying any tactical decision making”. We also went on to confirm that proponents of passive funds claim that they often outperform active funds over ten year periods.
The situation at Woodford has “locked clients in” whilst the situation regarding the suspension is resolved. A similar situation seems unlikely to occur with passive funds, as no “stock picking” takes place.
Whether one of Chancellor’s clients has invested via a Discretionary Fund Manager portfolio or a passive investment strategy, the news about Woodford will have not had any direct impact. If you do however wish to touch on any aspect of the situation, then please do not hesitate to contact your usual Chancellor adviser.