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Is there ‘Woodford’ in my portfolio right now?

The media are currently having a field day at Mr Woodford’s expense. Oh how they love to see someone fall!

But is there reason to panic and do you hold Woodford in your Proactive Thomas and Thomas portfolios?

The simple answer to both questions is a resounding ‘No’.

So what’s the real story?

I remember meeting with Neil back in 2012 when he was at Invesco. He outlined his views on the world economy and why he was still bearish about recovery. This man is impressive. His calm self-assurance is the stuff of leaders.

I left his offices in Henley, very comfortable with our call to continue to hold his UK Equity Income Fund.

When Neil left to start his own fund house a few years later, we were very interested in developments. However, our process means that we won’t buy a fund with no history.

A couple of years into the game, we had enough data to support a decision to recommend holding his flagship Woodford Equity Income fund. It went well.

By May of 2017, our clients were sitting on a fund manager who could boast being up around 467% vs the FTSE All Share which was up around 140% over a 17 year period. What could possibly go wrong?

In the September of 2017, we warned our Proactive clients that we were putting the fund on ‘watch’. Our methodical approach means that we strip back our portfolios every quarter without fail and reanalyse each and every fund with cold fresh eyes.

The Woodford fund was suddenly exhibiting far greater levels of volatility than we would expect. This is a red rag to our investment committee and we were concerned. The standing historical data was fine – but something just ‘felt’ wrong. We were concerned by some of the stocks he was holding – but we wanted to give this a little more time to play out.

In December 2017, we made the decision and advised all of our clients to pull out of the fund. At this stage, it was still looking good over the long term, but short term data was negative.

Mr Woodford is something of an institution in the UK. I fielded several phone calls from unhappy clients who just couldn’t believe we could be so radical as to ditch the UK’s greatest fund manager. I took quite a bit of flak and decided to run a session in our 2018 Masterclass on the reasoning behind my decision.

Only last week, in our May Investment Committee, we simulated going back into the fund as it was now so cheap. This is where our carefully built relationships, quantitative and qualitative data analysis came in. After full analysis and then a frank conversation with a long standing representative relationship at Woodford, we felt the heat was not yet off for this beleaguered fund. We recommended a different course.

So is the story in all of this that we are so clever? No, Mrs Thomas would never let me get away with that!

Listening to the angry callers on radio stations and blogs yesterday, I had to shake my head at the ‘DIY investing culture’ so prevalent now in the UK.  ‘Woodford’s locked up my pension’ ranted one man who had merrily put all his savings into this one fund.

A very well-known DIY investing platform was still pushing the Woodford fund up until the day before the fund suspended.

The old adage – never put your eggs in one basket – should always be adhered to when investing.

But this is just the start.

You then have to really understand what you are investing into and have the readily available independent analysis and information to make an informed decision. You need to understand the negative correlation and blending factors between the funds and sectors that you are selecting, and you need to have a documented and accountable process for spotting volatility.

At Thomas and Thomas this is what we do.

We are not geniuses. We are simply diligent.

Mr Woodford didn’t suddenly become a bad fund manager, he is a cracker. His time will come back I hope, and when things look different at a forensic level, we will be recommending him again.




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