Your views on Woodford… and more Brexit responses

It’s mailbag time again – which is when I address some of your replies (for which many thanks) to recent articles, as well as adding a few comments of my own.

For starters – no, not Brexit for once, that’s later on – some of you felt that I was being too sympathetic towards Neil Woodford in my article last week.

Most readers will know the story by now, but here’s a quick recap if you don’t:

In 2014, following a stellar career at Invesco, Neil Woodford started up a new fund management operation backed by financial advisers Hargreaves Lansdown and St James’s Place. This comprised a small cap-based investment trust called Patient Capital, an Equity Income Fund and an Income Focus Fund.

In short, portfolio performances have generally been poor. Increasing numbers of customers have demanded their money back. And last week, Mr Woodford was forced to announce that he needed to suspend the Equity Income Fund. In other words, he needs more space to raise cash for these redemptions by selling assets.

Apart from picking too many duff stocks, Woodford has compounded the problem for the Equity Income Fund by investing in a range of smaller and relatively illiquid holdings. These are proving particularly tough to sell in the current circumstances.

This suspension is, err, not exactly very popular with Woodford’s followers.

Now the real financial heavy mob is getting involved. Bank of England deputy governor for monetary policy Ben Broadbent has been telling the Treasury select committee of MPs that fund suspensions should not be banned and are the right course of action to take to prevent asset fire sales, reports Sky News.

And some of our readers are very unhappy indeed. These two comments, from both former and present investors, sum up the general view:

“Every one of Woodford’s trusts is trading well below initial price, so this one is no exception”, says ‘A’. “After four years of acting upon Hargreaves Lansdown’s recommendation of Woodford being the best trust manager in the country, I realised he was a spent flush a while ago and sold before the current collapse with just a small loss. I no longer trust Hargreaves Lansdown or Woodford.”

“I don’t have one ounce of sympathy for Woodford or Hargreaves Lansdown”, says ‘C’. “I believe that I’ve been lied to, and I am livid … I simply cannot afford the losses”.

I know it’s a cliché, but I share your pain. Losing money in the stock market is a very unpleasant experience. And being subsequently reminded about the risks of equity investment just makes the frustration even worse.

But here’s the bottom line. Stock markets have enjoyed a fabulous time over the last decade following the March 2009 great financial crisis lows. Prices of solid value stocks, the sort that did Woodford proud in his heyday, have been driven up along with the indices. As a result, there’s much less scope for making money without taking undue risks. Which is what Woodford did – and what’s caught him out.

I’ve been bearish of equities for many months now. At best, I don’t expect stock market indices to make much upward progress from currents levels. But I sincerely hope that those readers who are suffering Woodford-inspired losses manage to recoup at least most of their money.

Now, back to Brexit. Here are some of your recent remarks on the topic:

“Much of the discussion that is taking place is about whether or not the UK should leave the EU”, says ‘L’. “Regrettably that decision was taken three years ago by the people of Britain. The events of the last six months have raised the constitutional issue of the authority of parliament to overturn that decision.”

“The idea of a second referendum is no less absurd than the multiple votes that have taken place. Mrs May gave the job her best shot, leaving resignation as the only honourable exit. Parliament is clearly not competent to conduct negotiations. So could the Queen – as Head of State – make the decision that Parliament has shamelessly avoided?”

Interesting idea, ‘L’. My knowledge of British history is a bit ropey, but wouldn’t that overturn everything that has de-powered the sovereign since the Glorious Revolution in 1688 (and maybe even going back to the Magna Carta)?

Moving on…

“Since the run-up to the Referendum I’ve been a keen supporter of a no-deal Brexit”, says ‘R’. “But a couple of Remain arguments occurred to me the other day.”

“First, 40 years ago we appeared to have a competent civil service. Now we’ve seen the shambles it’s made of the Brexit negotiations, in a brave new post-Brexit world where we have to make trade treaties to survive it’s likely to be eviscerated. Even domestically, is there a single major IT system that the country’s civil service has bought that hasn’t been scrapped at vast cost because it’s been useless?”

“Second, if we remain in the EU and Jeremy Corbyn gets elected, and he then tries to bring in his or McDonnell’s demented plans, he will find that the majority are banned in the EU. But if we leave, we lose that protection.”

Such sentiments certainly won’t find favour with the Labour voters amongst our membership (and yes, there are a few!)

Still on the civil service theme, “the Treasury (and many other supposedly politically neutral civil servants) have persistently taken one side (Remain) and have done, are doing, and will do their best to sabotage Brexit and force us back into the grasping, controlling arms of the EU“, says ‘C’.

“The trouble with the Treasury ‘experts’ was that they used a model based on the status quo and used it to predict the outcome of a new situation (i.e. UK out of EU) that the model hadn’t been designed to deal with, and for which there were not decades of data. They then ran the model to predict 15 YEARS ahead, despite just having failed to predict the budget deficit 3 MONTHS ahead after the last budget.”

Good point, ‘C’. Official forecasting failures are another of my bugbears.

“I’m sure the Treasury ‘experts’ were asked by the government to get a particular outcome, and they tweaked away until the result said what they wanted. But Brexit brought massive instability into the system. Did the Treasury examine widely different scenarios? If not, that’s negligent. If so, these weren’t published – which would also be criminal (the Treasury’s role isn’t political) and treasonous (because it’s attempting to sabotage democracy).

And finally for today:

“If there’s to be a second referendum it should offer the choice of IN – meaning fully in the EU, i.e. adopting the euro and free movement, etc. – or OUT”, says ‘S’. “Let the Remainers argue the long-term case for EU membership and the Leavers can argue the case for starting with a no-deal offer. Anything else will be a compromise worse than the current position.”

Can’t argue with that, ‘S’. Even if our politicians had meticulously planned to mess up Brexit completely, it’s hard to imagine how they could have fouled up even more than they have.

Once again, many thanks for all your responses – and please keep sending them in on ukuncensored@agora.co.uk.

1 Comment
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