Neil Woodford was hailed as a high-profile “star” fund manager after outperforming the market for a number of years. In June 2019 however, with countless investors piled into his flagship fund, his star fell to earth. In this video, the Financial Times’ OWEN WALKER asks what investors should learn from the fund industry’s “star manager” culture.
TRANSCRIPT
Robin Powell: Every now and again, a fund manager will outperform the market for a number of years and be hailed as a “star”. And that’s when most investors pile in, and then the fund manager starts to underperform. That’s exactly what happened with the well-known British fund manager Neil Woodford, whose flagship fund collapsed in June 2019.
Owen Walker: This was huge news. This was the biggest British business story of the summer. I can remember, at the time, at the FT, we did five front pages in six days in the week it collapsed. It was just one of those turning points for the British fund management industry, where they really had to have a good look at themselves and think: are we serving the customers in their best interests? What can we do better? It was huge.
RP: As Owen Walker says, the Woodford collapse could have been a turning point for the fund management industry. But the star manager culture is still very much alive and well. So what are the lessons for investors to learn?
OW: Don’t place your entire life savings in the hands of an individual. Or actually maybe a theme or topic – a very hot topic that people are trying to promote to you, such as investing in technology or something along those lines. It’s really just to sort of spread out and, if you do want to invest in these sorts of things or you’re attracted to a certain fund manager or a certain fund managerial company, to do it in a very small portion of your overall portfolio. Another thing is to really focus on the liquidity – and liquidity is a bit of a technical term, but it’s just how quickly a fund manager can trade, can sell, and buy in the assets within its fund. Some of these funds are very hard to sell so, if you pull your money out and other people pull their money out, it’s going to leave that fund with an awful lot of problems.
RP: Investors also need to be wary of fund recommendations. Neil Woodford was heavily promoted by several major platforms and brokers, and by many journalists.
OW: When they’re saying: we recommend this fund, or this fund is in our “best buy list” or this fund is on a list that we would recommend you have – why are they saying it? Is it because it’s got very strong performance, it offers diversity, it’s cheap, it offers good value for money? Or is it another reason? Are they benefiting from you investing in that in some way?
RP: Remember, Neil Woodford was one of a long line of investment stars who fell to earth… and he won’t be the last. Be very careful before entrusting your money to a high-profile fund manager. They can lose their stellar status very quickly.
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