Is Neil Woodford finished? There are times when it looks like it. The suspension of his flagship fund LF Woodford Equity Income is a stain that will never be erased.
Yet the response could be overdone. Cast your mind forward a few months or years, and his prospects may look a little brighter. Woodford could just turn this dismal story around.
The man has had a bit of bad luck. His style of investing involves targeting undervalued UK companies in the hope the market will eventually swing round to his favourable view. Unfortunately, Brexit has dragged on longer than he (and anyone else) imagined, and the turnaround never arrived.
Deal or no-deal
If we get some Brexit clarity – and heaven forbid some kind of deal – then sentiment could swiftly change as global money pours in looking for bargains, driving up Woodford’s holdings.
Even a no-deal Brexit may not be disastrous for UK shares, after the initial shock. If the economy avoids a total meltdown then, again, global investor sentiment could recover and the contrarians could start piling in. Investing is cyclical and if the market finally moves in favour of Woodford, he may not look like such a total klutz forever.
Lost his touch
There’s a problem with this analysis, though. Woodford undoubtedly made a string of lousy investment calls, along with the grotesque error of filling an equity income fund with illiquid and unquoted stocks. These were achieved often making big, big calls on small, small companies without doing enough to alert investors to his change of course. The subsequent reputational damage will not be easy to restore.
To win investors over, he needs to lift the gates on his fund as soon as possible. Woodford’s fund generates £100,000 in fees every single day, much of this from clients who now want nothing to do with him. It makes him look both greedy and out of touch.
Woodford then needs to clear out all those unquoted biotech stocks and other start-ups, many of which will have to be dumped at fire sale prices. Although, with luck, others could be shifted into his closed-ended vehicle Patient Capital Trust, or even floated.
Once he has done that, all will rest on the public’s response. Many will grab their money and go it alone, but others may be more loyal than you think. Some will be reluctant to crystallise their losses and would rather hang on in the hope of a recovery.
I hate selling when everyone else is fearful too (and angry, frustrated, desperate). I have a small-ish stake in the fund and will hold onto it and see how things go.
Also, we might see a trickle of contrarians looking to take advantage of Woodford’s self-induced misfortunes, and that could turn into a flood if the story turns more positive. Ultimately, it will come down to performance.
Has Woodford learned his lesson? Will he return humbler, wiser? Can he still work the old magic with blue-chips? Nobody knows the answers… yet.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019