What Went Wrong at Woodford: A big thank-you to Ed

5th Nov '19 by wilkonz

20 comments 1075 reads

If anyone missed Ed Croft's webinar on 'What Went Wrong at Woodford' (Wednesday, 4th November 2019) I'd strongly recommend it - it's freely available on Youtube. The talk was a model of clarity and must have taken well over 80 hours to prepare. One of the least painful ways of learning is through other people's mistakes and Woodford - almost inexplicably - made mistakes he should not have made, including the classic of selling his winners and holding on to his losers. I've just been through all the slides and will repeat the exercise a few more times. Many thanks, Ed and the Stockopedia team.

Youtube replay - https://www.youtube.com/watch?v=QCeKKnQX-sI

Slides - https://www.slideshare.net/stockopedia/what-went-wrong-at-woodford-a-forensic-analysis

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ezlifeme

5th Nov '19

Watched it last night on replay as an invited interested participant (1pm no good for my working day)

Have several slides i n my "DON'T FORGET THESE NUGGETS" library for frequent re indoctrination - nicely put together

Just one hint for the future - Different format for the replay this time seemed to mean I couldn't look to see how long it was (Would be nice in the notes to the site to advise me so I could have the time aside to do it in one go

Keep them up Ed and thanks for the initiative to raise the thank you to wilkonz - Not many people take time end effort to praise someone these days

pka

One scandal of this sorry saga is that Woodford was allowed by the regulators to hold such a high proportion of stocks that don't pay a dividend, and have no prospect of doing so for many years, in what was advertised to the public as an equity income fund.

john2

That is a fascinating analysis. For me the slide that puts the viewer straight into Woodford's mind just before it all went wrong is the one that describes the contribution to performance of the top 5 contributors in 2015.

Stratified Medical (unlisted) rose 490% to give a 2.9% contribution.

Prothena (unlisted) rose 249% to give a 2.3% contribution.

Imperial Tobacco rose 33% to give a 2.2% contribution.

Reynolds American rose 56% to give a 1.7% contribution.

BT rose 21% to give a 1% contribution.

He was distracted by the stellar performance of two highly speculative unlisted companies.

Edward Croft

@wilkonz - thanks so much for the kind words. It was indeed a lot of work to put it together. I'm hoping to run a sequence of blogs for the site with Ben on this and also wrap it up in an Ebook.

I've added the youtube video as an embed above.

dlaw

Excellent work Ed and team.

The portfolio transition from 2014-16 should come with an x-rated warning!

simoan

Hindsight is great, we can and must all learn lessons from history, but foresight is much, much better. Given that Woodford made all the funds holdings public (right up until the point where he needed to unload them!) where were the people warning of these issues beforehand?

Perhaps there were people who called out Woodford and I simply missed them because I don't invest in or follow funds, but it would have been far better for someone to have made the case that the Emperor had no clothes years ago. The fact no-one did calls into question the ethics of the whole fund management industry IMHO. There are good reasons why some of us plough our own furrows... lest we not forget!

All the best, Si

leishylegs

I've also just watched the you tube video - and would second everyone's thoughts here. A great video insight into how things deteriorated at Woodford and my thanks to Ed and the team for putting in what has clearly been a huge amount of work. Really excellent material.

Have you watched the video? It quotes Jason Hollands from Tilney Bestinvest as saying, 'Investors in the Woodford Equity Income fund might reasonably be asking why a UK fund, which is described as 'offering exposure to companies that can deliver sustainable dividend growth', has an illiquid holding in a US biotech stock that has never paid a dividend'. Also John Chatfield-Roberts from Jupiter Asset Management said, 'We had lost confidence with what was happening with the fund. When we had started there were six unquoteds in the fund and by the time we'd sold there were 45 . . . if he had worked at Jupiter it just wouldn't have happened'.

It quotes Jason Hollands from Tilney Bestinvest as saying, 'Investors in the Woodford Equity Income fund might reasonably be asking why a UK fund, which is described as 'offering exposure to companies that can deliver sustainable dividend growth', has an illiquid holding in a US biotech stock that has never paid a dividend'. Also John Chatfield-Roberts from Jupiter Asset Management said, 'We had lost confidence with what was happening with the fund. When we had started there were six unquoteds in the fund and by the time we'd sold there were 45 . . . if he had worked at Jupiter it just wouldn't have happened'.

Well, the mind boggles as to why one fund manager should hold the fund of another! Just think of all those lovely charges compounding for the poor investors in his fund. It makes you wonder why John Chatfield-Roberts owned Woodford Equity in the first place... the blind following the blind.

All the best, Si

Excuse me, you said, 'it would have been far better for someone to have made the case that the Emperor had no clothes years ago. The fact no-one did calls into question the ethics of the whole fund management industry'. The video quotes two people who did make that case.

A far more pertinent question is why the likes of Hargreaves Lansdown continued to vigorously promote Woodford's funds up until the point at which they were suspended. The introduction to HL's Wealth 50 lists states, 'We’ve spent decades and thousands of hours crunching the numbers, and meeting fund managers, to uncover funds we believe have the most potential in each sector. To date, we’ve had an enviable track record'.

Sorry, but I didn't disagree with anything you wrote. I merely questioned why he held the Woodford Equity fund in his own fund in the first place. He was clearly happy with 6 unquoted companies when he invested and only lost patience and sold up when there were 45 in the middle of 2018. The Woodford fund had been running since 2014 so he held for 4 years despite it's terrible performance and the increase in unquoted company exposure. Excuse me if I don't take too seriously what he has to say under the circumstances...

Gromley

I have yet to watch the video yet, but surely the question is when they made these calls?

If the made them well in advance of the big bust, that would of course be valuable.

-1

Graham Ford

Si

“Well, the mind boggles as to why one fund manager should hold the fund of another! Just think of all those lovely charges compounding for the poor investors in his fund. It makes you wonder why John Chatfield-Roberts owned Woodford Equity in the first place... the blind following the blind.”

John Chatfield-Roberts runs funds-of-funds. Of course there is an extra layer of charges and that is a downside but it is a perfectly reasonable route to take for those who don’t want to do portfolio management themselves. This is normal.

6th Nov '19

@everyone - I'm making a speech on this topic "What Went Wrong at Woodford" at Mello in London next week - so if you want to chat about this in person I'll be there. I believe it's a main stage speech on the Wednesday at 11am. https://melloevents.com/event/

It's the same slides... maybe with a small update or two.

Steves cups

Ed,
Thanks for the great time and trouble that your team went to to put this together. Compared to the BBC programme that pandered to the masses for simple answers this was a masterclass of letting the data do the talking. I hope that any regulatory processes will use this video.
The first thing I did was to use the scatter QV graph (don't know if thats the right phrase) against my own portfolio.
Learning all the time

Steve

Steve - Was the answer enlightening, frightening?

Ez
Just looked and it's what Ed calls the bubble chart
Interestingly I had no stocks in red zone, 15 in white zone and 13 in green, so all in all that's good. Having said that during the last 3 months I have exited a couple of speculative so I am trying to stick to what works as Ed puts it.

Thanks for asking

Ed,

Thank you for your fascinating talk.

I was interested that one of the reasons you gave for Woodford's problems was that he had too high a proportion of stocks with high Momentum Ranks but low Quality and Value Ranks in his portfolio. However, if you look at the past performance history of the Stockopedia Ranks, stocks with high Momentum Ranks on their own have performed very well with holding periods of 3 months to one year. I suppose the problem with Momentum is that it is a much less long-lasting factor than Quality or Value, so momentum is not an appropriate basis for the selection of stocks that are lilkely to be held for several years, which I assume Woodford had to do with most of his stocks due to the huge size of his fund.

intuitive6191

12th Nov '19

During the normal operation of a fund an investor can regularly check on the underlying investments within the fund and form an opinion as to whether the fund still meets their criteria. The problem is that funds are marketed to people who probably don’t want this level of involvement and work on the basis of trust.

The tragedy here was that few in the financial industry raised enough red flags during the funds deterioration to warn the average person of the increased risk. Once again the industry and the underwhelming efforts of the FCA have been found wanting.

If we look at Woodford Patient Capital Trust it would appear that there is still some questionable risk information at large. The key information document (KID) dated 27.11.2018 is still current and lists the trust as 4 (medium risk), yet in the annual report of December 2018, it stated that 65 % of the investments were unquoted with 53% of holdings being in healthcare. This doesn’t look medium risk to me.

13th Nov '19

Interesting article on Citywire stating that Woodford Equity Income holders will face a possible further 33% loss on wind up.

I would guess that there is money to be made by someone from such a situation - but not for shareholders it would seem.

What Went Wrong at Woodford: A big thank-you to Ed

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Wilkonz

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