There are a lot of ways to lose money right now – you might be down 30% in fintech stocks; you might own the Nasdaq Golden Dragon China Index (up a lot this week, but still down more than 60% in a year); or you might just Have too much one-off high-priced Scottish Mortgage Investment Trust in your portfolio – and it’s down 30% in the past six months. But for all the pain of this disaster, they do have benefits: You can always sell and take your remaining cash (whether that should be a different conversation) and move on.
This is not the case if you are an investor in Woodford Equity Income funds. The fund was suspended in June 2019. Its manager Neil Woodford (once considered the best fund manager in the UK) used it to buy a bunch of small, illiquid stocks he couldn’t buy at the time (did not generate income!) when his poor performance prompted investors When asked for a refund, he sold in a hurry.
There is always an escape route
The idea is that the moratorium would give Link — who fired Woodford and took over fund management — breathing room to sell assets and return cash. Three years later, it’s still there. It sold £2.5bn worth of shares, but the final stock remains unsold; investors haven’t seen a penny in 15 months and there’s no clear end date. Sales will continue, but “at a pace that seeks to achieve the best possible outcome for investors,” Link said.
Link’s definition of “best” may differ from ours. Best would have intervened before the fund apparently struggled in 2019. After that, Best would sell the first batch of assets for close to their actual value (the first time it wasn’t too obvious what a round of buyers got when they opened them). Your best bet is to find a way to sell the remaining shares to private equity and the small-cap growth frenzy late last year.
Good luck getting a good price now (they’re valued at £141m) – as Link honestly puts it, due to “the nature and maturity of some of the remaining assets, their valuations may go down as well as up” “. Even if they hadn’t fallen, investors would have received a total return of £1bn less than what they were expected to be worth on the day the fund was suspended. In the end I think, with the exception of Link, we all agree that “best” must mean ending the entire saga of regret in three and a half years.
The only positive I can get from all of this is that Link’s regular, grim updates keep reminding people that there are two risks to investing. The first is the problem most of us are dealing with right now (volatile markets) – no one is to blame for it (except central banks – we’ll talk about that for another day). The second is getting stuck in the wrong structure and not being able to get out. Woodford provides the best example of how careful you have to be (he’ll be glad he’s the best at something), but we’ve seen it again in the past two weeks: many in Russia have The exposed funds have been frozen. We’ve long favored investment trusts over open-ended funds – the ability to sell at any time is a big reason why. I’m not happy about adding JPMorgan Russia Securities to my portfolio (down 86% in a month). But I’m at least happy to be free to sell the remaining 15% without any input from Link.