Can Neil Woodford, the man who made Middle-England rich, get his Midas touch back?

Can Neil Woodford, the man who made Middle-England rich, get his Midas touch back?

Ask someone in the main street to name an investment manager, and he'll probably only find one of two answers: "Sorry, no clue" or "Neil Woodford." Some say 58-year-old Woodford, founded four and a half years ago by Woodford Investment Management, is the British response to Warren Buffett, one of the few fund managers who can outsmart the market and generate long-term returns for investors

Someone who, during his 26-year career with asset manager Invesco Perpetual, has developed the reputation of money management in such a way that his investors escaped the worst consequences after the dotcom stock market bubble burst in early 2000 – and then on, let them lose a lot of money. The champion of the private investor. The man who made Middle England rich.

Others disagree violently, believing that their investment skills are exaggerated, a notion of smart marketing. A view that was on the upswing given the catastrophic start of Woodford Investment Management, resulting in paper losses for tens of thousands of investors who bought two of its funds at the time of launch – Income Focus (down 8 percent since March 2017) and Patient Capital (minus 9 percent since April 2015).

Contrite: According to Neil Woodford, the last two years have been the toughest of his career

Contrite: According to Neil Woodford, the last two years have been the toughest of his career

Contrite: According to Neil Woodford, the last two years have been the toughest of his career

Equity Income, the flagship fund, performed better (+ 15%), but its performance lagged behind for a longer period (since June 2014) and behind the FTSE all-share index (+ 27%).

The result? Money has run out of Woodford's door through the vault. The assets under management of the three funds fell from GBP 17 billion at the peak to GBP 11 billion. In the case of equity income, Woodford had to divest holdings he would rather have kept to counter the tide of investor redemptions. Hardly a job of an investment genius. Crisis instead of fund management?

"I'm not an investment genius," he returned in a sincere and somewhat sensitive interview with The Mail last Sunday. "I am just someone who pursues a disciplined and rigorous investment approach. If you want to talk investment geniuses, think of Anthony Bolton [former fund manager at Fidelity], And of course the epitome of genius Warren Buffett.

"Yes, people have praised me in the past, but they have not kept me from opprobrium. Everyone likes to build up people in this country and then knock them down. "A bit like the price of his money back then – up and down. In a moment of remorse, he admits, "The last two years have been the hardest part of my entire career." For the record he has worked since 1987 with the money business, when he worked for the insurer Eagle Star (long gone).

Although Woodford insists that he does not want to be a victim, it is obvious that he feels unloved: targeted by a hostile press, abandoned by many investors (and some financial advisers), and by hedge fund managers who have lost some of his positions, sacrificed Fund holdings – betting that they fall in price – knowing that Woodford can do little about it, but suck his thumb.

In fact, one of his opening comments is aimed directly at me. "It's interesting that we're talking now," he says. "We had a conversation about 20 years ago – just before the tech bubble burst – when you criticized me for underperforming with Invesco Perpetual. It's an article I've kept in a drawer ever since. "A zero at Woodford.

He is right, although the article in question was actually written in March 2000 – and the criticism was not from my pen, but from financial advisers who accused him of "relentlessness" for his refusal to acknowledge the potential of technology stocks and his pride. # 39 ;. One all.

By the time Woodford steadfastly owned a basket of reliable, cash-generating blue-chip stocks, the claim to Investment Fundamentals (companies that are being valued by the market) would reassert itself, and its reluctance would prove correct out.

As the newspaper was printed, of course, the tech bubble burst. Woodford was right while some consultants with tails hung between their legs. Two one Woodford.

There is a reason why Woodford mentioned the article differently than I felt a little uncomfortable (I was not thrilled when I learned from one of his former colleagues about the contents of his drawer some years ago). That's because between March 2000 and now he sees strong parallels. Eighteen years ago, many company valuations were unrealistically bloated, resulting in a two-year stock market renewal and numerous Internet-based companies. Company that Woodford did not want to keep.

This time around, Woodford says that a number of large equities in both the UK and the United States – many technology companies – have upgraded their valuations to unsustainable levels. These include the so-called "fangs" – Facebook, Amazon, Netflix and Google (now alphabet). At some point – and this already happens – the stock prices of these companies will be corrected and normalcy will prevail. Woodford Investment Management will be fine then.

Momentum investing was to blame. This is a fashionable investment process based on the purchase of stocks that have already performed well, on the basis that they will continue to do so. Race with winners.

Such an approach is a contradiction for Woodford. "It's a strategy I will not participate in," he says. "It's not based on rationality. It is designed to give stock prices a boost. My approach is to analyze companies and evaluate how good they are and what value they offer. Will they be winners or losers in the next three to five years? That's what I call active, disciplined and meaningful fund management. An art that I am afraid of being pushed out of. Faulty? Yes, because as a fund manager, you can never do everything right. But in the long run it works. "

Instead of technology stocks, Woodford is investing in companies that are "woven into the fabric of the UK economy" – home builders, building material suppliers, and financial companies. Personalities such as Taylor Wimpey, Barratt Developments, Crest Nicholson and Provident Financial. All top 20 investments in both equity and results.

"Some of these companies are trading at ridiculously low valuations," says Woodford. "There is a gap between the market and what it is really worth. Eventually that will go away, maybe if we have a definitive answer to the Brexit question. If this is the case, my funds will benefit accordingly. "

Some organizations, such as the rating agency Standard & Poor's, believe that the UK could fall into recession in a no-deal Brexit. Woodford disagrees.

"You see, the probability of a no-deal is constantly increasing," he says. "But it does not matter in any way – the 2.5 million companies that make up this big economy will not affect the guts of the economy – companies that employ a record number of employees pay higher wages than ever before and on a daily basis Manage all types of business risks. "

While some may argue that Woodford is holding on to straws, he would like to point out that last month's fund redemptions – investors wanted – had reached their lowest level in the year so far.

The relative performance of equity income over its peers has also improved over the past three months, although it means less to investors than most rivals.

Even Patient Capital, an investment trust investing in some of the country's embryonic businesses, has just regained its place in the FTSE 250 index.

What Woodford can not be taken is that he is only resilient. He survived in 1998 and 1999 when some demanded that he lose his job with Invesco Perpetual. "Some criticisms were poisonous," he recalls.

No doubt he will move heaven and earth over the coming months and years to make sure the three funds he manages are successful in the long run. The fact that most of its assets, except for the Gloucestershire family, are tied to the fund ("skin in the game") should reassure investors.

"I'm made of hard stuff," he says as he finishes our conversation. A point reinforced by Alan Steel, chairman of financial advisor Alan Steel Asset Management. "On a recent visit to our office, I've never seen Neil so determined to go through his disappointing time," he says. "They would not bet against him."

Perhaps he will not help himself by allowing investors, rivals, hedge funds and even curious journalists to see all the companies he keeps in each fund – and picking "mistakes". This is a level of transparency that other investment houses reject.

Genius? Opportunist? "Successful private investors have left the fund manager's cult behind them," says Brian Dennehy, fund manager FundExpert, skeptically. "My advice to Woodford investors is Sell, Sell, Sell."

However, Woodford's most balanced view comes from Patrick Connolly, a financial planner chartered by Chase de Vere. "He was exaggerated if he performed well and was heavily criticized,

"To quote England football manager Gareth Southgate," We are not as bad as we think when we fight, and we are not as good as others, even if we succeed. "This seems to be a reasonable reflection by Neil Woodford. & # 39;

Me? I think Woodford will be fine again. He is a street fighter who does not like being beaten. He won in 2000 and I am sure he will be back in the near future. Put this item in your drawer, Mr. Woodford, and let's talk about it in 2038.

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