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Woodford sorry for 'incredibly painful' fund losses

Woodford sorry for 'incredibly painful' fund losses

by Daniel Grote Sep 07, 2017 at 09:03


Fund manager Neil Woodford has apologised to investors for the 'incredibly painful' run of poor performance for his funds.

Woodford's flagship £9.8 billion Woodford Equity Income fund is the worst performer in the Investment Association's UK Equity Income sector over 12 months, and the only fund to have made a loss over that period.

His Woodford Income Focus fund has delivered flat returns since its launch in April, while shares in his Woodford Patent Capital (WPCT) investment trust continue to trade below their 100p issue price more than two years since its launch.

In a video interview published on Woodford Investment Management's website, Woodford said the funds' difficult run had been an 'incredibly painful and difficult thing to have to navigate'.

'I'm very sorry for the poor performance that we've delivered really now since 2016.'

You can watch the video below and read the transcript here.

By far the biggest blow has been the collapse in the shares of Provident Financial (PFG) after the doorstep lender last month delivered its second profit warning in two months, announced the departure of chief executive Peter Crook, scrapped its dividend and revealed an FCA investigation into its repayment option plan product.

The shares tumbled 67% in a single day, and remain 55% down since the barrage of bad news was delivered. That sparked a slide in the Woodford Equity Income fund, which held 4.1% of its portfolio in the stock at the end of July, and the Woodford Income Focus fund, which held 3.4%.

Woodford acknowledged the damage the stock had done to its fund but said the stock market reaction had been 'hysterical'.

'Clearly, owning as much as I did in Provident Financial has been harmful for the funds, because the stock has fallen a hell of a long way, in my view a disproportionate amount,' he said.

'Clearly, the share price should have fallen to reflect the profit warnings that we've seen. But I think the stock market, yet again, has become hysterical and, yet again, has multiplied many times the impact of all of this problem in the home credit business.'

He dismissed criticism over the size of the stakes he takes in businesses following Provident Financial's share price crash.

'I don't believe that there is a problem with owning a large stake in a business that is profoundly undervalued,' he said.

'My career has been built on taking big bets in businesses that have been profoundly undervalued. Clearly, lots of active managers who have closet index portfolios will be quite happy to have very small stakes in businesses. But that isn't how I run money.'

Market punishing UK stocks

Woodford argued that while shocks such as Provident Financial's share price collapse, or the big drop in the shares of top holding AstraZeneca (AZN) on the failure of its crucial Mystic drug trial, had hurt performance, he said broader stock market trends were behind the poor run.

'It's tempting to think, well, maybe the underperformance is a product of these sort of company specific problems. And certainly, they've not helped,' he said.

'But for me, when I think about the portfolio in the round and think about what's happening in the stock market, more broadly, and what's happening in the portfolio, the underperformance is a product much more of the rather odd characteristics of this bull run in the stock market.'

He said the stock market rally was being led by a narrow bunch of stocks providing exposure to Chinese credit growth, while stocks deriving their revenues from the domestic UK economy were being shunned.

'In very simple terms, the stock market has decided that Asia, China is good, the UK is bad,' he said. 'I see that preference playingout in the stock market daily.'

UK domestic stocks have become a key focus for Woodford, after the manager overhauled his Equity Income fund in April to capitalise on what he saw as the value opportunity in the sector.

He acknowledged the temptation 'to take the easy option' and 'sell the UK cyclicals, and just hide in the group where everybody else is investing'.

But he argued that would be 'a betrayal of my investment principles' and 'entirely the wrong thing to do in terms of the medium- and long-term interests of our investors'.

'There's huge potential in the portfolio, huge undervaluation,' he said. 

'It's a great portfolio, one that I own and want to own more of. The short-term performance is painful and is difficult, but it isn't a permanent loss of capital. And I can and I believe I will rebuild the performance and rebuild that capital that we've lost recently.'

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Comments  (23)

  • JohnR: 

    The problem is no one knows, discounting the beleaver fantasies, what the brexit cliff edge is set to deliver beyond upheaval and falling living standards.

    There's little wonder investment money is looking elsewhere and the UK is on the back burner.

    I personally don't see where Woodford's UK 'get out of goal' is going to come from but he's done it before.

    11:00 on 07 September 2017

  • AJW: 

    You're spot on JohnR, it's hard to be optimistic about UK market's prospects with Brexit coming over the hill.

    11:19 on 07 September 2017

  • William Phillips: 

    The latest purchasing managers' index is buoyant, pointing to business confidence riding high. The fall in the pound has started a tourist boom and brightened export prospects. The London equity market has not collapsed.

    Don't be such moaning minnies.

    13:19 on 07 September 2017

  • Micawber: 

    With interest rates halved, an extra £45bn of QE, a 15% (or more) devaluation of the pound and still trading within the single market the economy is still slowing...... but by Jingo, we'll win through. Now where are my golf clubs?

    13:35 on 07 September 2017

  • William Phillips: 

    Devaluation was a necessity, and has not exacerbated inflation.

    You don't know what Brexit will mean, if much, in the long run. So far it has meant very little. The fearmongers have been left with egg on their faces and sour grapes in their bellies.

    Investment managers I respect such as Bruce Stout and Nick Train think EU membership matters little compared with the economic changes other factors will bring to upset the developed economies. I did not bother to vote in the referendum because I felt the same way.

    The EU is such a mess that it might not be around much longer for us to 'rejoin' (without belonging to the EMS). And why would they want us, with even more detachment and resentment of their beloved 'project' of 'ever closer union' festering on the margin of the Franco-German axis, after the popular will was hegated in traditional EUSSR fashion?

    Nope. It's over. Even Ireland is beginning to question whether its future is to be in this crumbling racket.

    The Remoaners have nothing to offer but silly prophecies of doom. Most Brits, however they voted, have adjusted to the new reality.

    14:22 on 07 September 2017

  • Micawber: 

    You should not believe all you read in the Daily Telegraph!

    14:29 on 07 September 2017

  • Micawber: 

    Try those pinkos at the BBC: e.g. The European Central Bank (ECB) has raised its eurozone economic growth forecast for this year to 2.2%, the fastest growth in 10 years. (http://www.bbc.co.uk/news/business-41186368)

    14:33 on 07 September 2017

  • JohnR: 

    Thou doth protest too much, methinks.

    14:33 on 07 September 2017

  • Novgorod: 

    Woodford has made too many mistakes / poor investments in his portfolios - in contrast to other star fund managers - for someone who is supposed to be good at investing.

    Makes one wonder if he hasn't lost his touch or is going through some sort of personal issue that is distracting him. Hopefully he'll gets back on track soon.

    17:07 on 07 September 2017

  • Tony Peterson: 

    Woodford has already admitted that criticism hurts him.

    Yet in 2016 he paid himself £7 million (if the Times is to be believed). More than 100 times the salary of the Chancellor of the Exchequer who is responsible for the finances of the whole country! It beggars belief.

    With a sense of entitlement to such a huge cut from the life savings of gullible investors (like many of you lot) who have lost even more by placing your faith in "star managers" like our sensitive Neil.

    My advice would be to stay away from the lot of them. You can guess the future as well as any of them, and be your own efficient fund manager.

    Most of you try to minimise your tax liabilities, but you let the gurus of the financial services industry (which stinks to high heaven) claim whopping proportions of your hard earned cash. I can hardly believe it.

    The UK financial services industry is a low-level scam.

    18:33 on 07 September 2017

  • Franco: 

    I do not agree with you Tony Peterson, the UK financial services is a high level scam.

    20:15 on 07 September 2017

  • an elder one: 

    Tony; amen: on that basis my portfolio has appreciated a modest 12% thus far this year, and did not badly last year either in my estimation, with a fair proportion trading abroad.

    Incidentally, I voted to leave the EU on the basis of politics and nationhood, not economics as portrayed at the time, with a belief that moaning big business would sort itself out - or else - and that smaller business would see more opportunities outside of the EU strangulation.

    20:26 on 07 September 2017

  • an elder one: 

    That said, arguably fund managers have a difficult job of it; they have to manage huge amounts of money, and finding stuff to put that all in is difficult, I imagine. Managing your own investment of relatively much smaller size you can be more selective and agile

    20:45 on 07 September 2017

  • joseph o neill: 

    Far to many egos in the fund management industry who charge excessive fees for mediocre returns.The whole industry including platform operators needs serious reforms.They all tend to scratch each others backs while milking hard earned investors savings.There' s not many managers who beat the markets overtime without manipulating the stats. Nick Train & Terry Smith & maybe a few others are exception's to the rules.Most large funds with marketing power pay lip service to platform operators for advertising their funds.

    21:15 on 07 September 2017

  • Tony Peterson: 

    The crucial problem in the industry is the mutual pocket-watering agreements between fund managers and executive directors.

    I well remember Victor Blank explaining at 2009 AGM of LBG how he had managed to persuade fund managers to support his insane cunning plan to takeover all the problems of HBOS, destroying most of LBG's capitalisation in the process. He took them all out to dinner. You could hardly make it up.

    And now Daniels wants to sue for the bonuses he didn't get for almost destroying Lloyds.

    And Woody is so so sorry. Sorry too - I"ve heard it all before.

    21:38 on 07 September 2017

  • mc2: 

    haven't we heard all that woodford is saying before - and over and over too from so many other managers?.... He knows, we know

    11:47 on 08 September 2017

  • mc2: 

    apologies are not enough. What about getting his £7 million pay into the funds via allocating free extra shares in proportion to his shareholders?... Now, that would be an apology I would fully accept...

    13:36 on 08 September 2017

  • Dennis .: 

    I gave up on him a few years back when he became part of the HL marketing machine. I bet his funds are still in the HL150 too. Get out while you can.

    09:23 on 09 September 2017

  • JayyMacc: 

    I saw the interview. Woodford is not actually sorry in the sense of regretting his misjudgements (there weren't any). He is sorry that the market is so irrational that it cannot always see how wise he is.

    Meanwhile if you have no assets and want to borrow £100 over 13 weeks at 1557.7% APR, just head over to the Provident Financial personal credit website. What could possibly go wrong?

    09:24 on 09 September 2017

  • Michael Stevens: 

    Will he give free fund management for the next three years and all charges?

    10:21 on 09 September 2017

  • dyche2: 

    My full-on 3 year relationship with Mr Woodford earned me a return of 4.2% while my bit-on-the-side Mr Train doubled my money. Small wonder that the former has now received my 'Dear Neil' letter. He doesn't look very humble though, does he?

    11:18 on 09 September 2017

  • Mark Yu: 

    The guy has spent too much time to express his supposedly sage opinions on subjects from brexit, economics, politics, but forgot his day job that paid him huge fees, that is to pick good shares for his funds.

    12:58 on 09 September 2017

  • Tony Peterson: 


    You are right of course. I was just being polite.

    And as well as stealing your wealth, these fund managers also steal the votes of the beneficial owners of the shares they invest in (i.e. many of you lot), which is why the remuneration committees get away with such insane gains.

    The system is corrupt and needs reform.

    13:35 on 09 September 2017

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