Update (Friday 18/10 @ 13.00) – Since writing the original article, the accuracy of the FE data for the No Trail/Z Share Classes has been questioned. It appears to be down to FE not pulling the correct data through on those share classes using the ‘Total Return’ tab. (Please read FE’s announcement on their attempt to link the data of share classes) Unfortunately, I have been unable to get a satisfactory explanation from FE on this.
Even then, using the annualised performance of the bundled share class below, Woodford underperformed over 3 and 5 years, although he did outperform over 10 years by 0.68%pa – 0.84pa!
On Tuesday, I did something that you are absolutely NOT permitted to do in financial services – question established thinking and accepted wisdom. I nearly got punched in the face on Twitter in the brawl that followed, which is OK, ’cause I’m quite tough 🙂
Many people in financial services will nod in agreement to following statement; Neil Woodford is an outstanding manager who consistently outperformed, runs the some of the largest funds in the country and he created wealth for his investors over the years. He even has a CBE to show it. Right?
So, why would anyone question his impeccable record? I’m still trying to come up with a really good answer for that one…. But, as the entire financial services have got their heads stuck up their bum-bums because this man resigned his job, I thought I’ll just check the records again for myself.
So, I simply compared Woodford’s performance with the Vanguard UK Equity Income fund and the FTSE UK Equity Index. And here’s the result;
When I tweeted something similar to this on Tuesday, Woodford fans were all over me like a rash, which was absolutely expected (to be honest, I did enjoy all the attention). I was told this was complete ‘rubbish’ as ‘5 years was too short-term.’ This was ‘not a good period for Woodford because of the dash for trash’ (what?) and if I looked ‘longer term,’ more specifically ‘over 20 years, he would have outperformed’
I was accused of ‘selectively’ choosing a ‘convenient’ starting point. In actual fact, there was nothing selective about the time frame. It’s simply driven by start of data for the Vanguard fund. (I blame you Vanguard, why didn’t you come into the UK 20 years ago?)
(Update 21/10: Using the more accurate bundled Share Class of the funds actually underperformed at 84% Vs 116% over a 5 years period)
And before you say anything about the volatility or risk adjusted return, I’ve done that too…
Ok, so the FTSE Equity Income (which the Vanguard fund tracks) was a bit more volatile but investors were rewarded for it.
When I asked Woodford fan club what the holding period of an average UK investor is, I didn’t get any answer. So I had to check for myself. It turns out that according to the IMA, it’s around 4 years. So, all these people telling me to go back 20 years assumed investors stayed in Woodford funds for 20 years? That doesn’t reflect the experience of a real fund investor.
To be fair to Woodford fans, there seems to be an acceptance than he probably lost his mojo 5 years ago but what does it matter, ‘you need to look long term’ they said. OK then.
So I thought I’ll take the advice of an esteemed industry figure who told me on Twitter to ‘do some proper work than rubbish like this’ and I compared Woodford funds with the FTSE UK Equity Income Index for the last 10 years and boom….
So he did outperform there a little bit but not by much.
(Update 21/10: Using the more accurate bundled Share Class of the funds actually outperformed at 211% Vs. the index at 189% over a 10 year period)
And the risk adjusted return for 10 years…
So one of the funds is slightly better on risk-adjusted basis, big deal?
OK, let’s cut the crap and use the longest history we can find since the inception of the FTSE UK Equity Income….
That’s what, 14 years? Is that long enough for you? Sorry, I can’t do the Scatter Chart over 14 years, FE doesn’t let me 🙂
(Update 21/10: Using the more accurate bundled Share Class of the funds significantly outperformed at by 284% Vs the index at 234% over a 14 years period!)
Warning: Now is really a good time to explain to me what all the hoo-hahs’ really all about, I am about to go on a rant.
I guess if you compared him to his peers, he’s quite remarkable. But that’s because far too many of them destroy so much value, which drags down the average. What I’m doing here is to find out the value add over and above the market (less 10bps charged by an index manager) and I didn’t really see much in the last 5 years.
And all these journalists and experts saying Woodford outperformed, in relation to what exactly? I think these people are making the wrong comparisons by using the likes of FTSE All Share or FTSE 100. Given Woodford’s mandate, I just don’t think these are the most accurate. This also explains, why I can’t make any comparison over 20 years, because the FTSE Equity Income has only been around 14 years and there is really no other accurate index to compare him to. But 14 years should be long enough for most ordinary folks right?
For me, this isn’t about active Vs passive, it’s about questioning the received wisdom in our industry. While we run Evidence-based portfolios here at FinalytiQ, I happen to sit on a few investment committees of IFAs firms, two of which run entirely active portfolios with over £60M fund under advice combined. Do I believe that these firms are doing the right thing for their clients, given what they know and believe? Absolutely! Why will they have someone who is a bit of an evangelist in evidence-based investment on their team? Well, they tell me that….. beyond all the benefits that come with having a young skinny lad like me at the table, it’s the ability and willingness to question accepted norms; to challenge established ways of thinking, even if all it does is make them come up with really good explanations for whatever it is they are doing. Apparently, you can make a living these days by asking silly questions 🙂
I think this is something lacking within many adviser businesses and the industry at large. We are often far too quick to accept whatever we are told by fund managers and industry publications (who, by the way, are completely independent and NOT at all propped by the massive advertising budgets of providers and fund managers). But, to my mind, if you are a good adviser, you will do your own homework (and no reading industry publications doesn’t count as ‘research’) and won’t ever get tired of questioning your own assumptions, let alone others’.
Never mind me, I’m only a tiny annoying little fish (with a blog and a Twitter account) in this deep blue sea. It’s not my intention to change anyone’s mind about Neil Woodford, let alone the entire fund industry, because ‘those convinced against their own will, are of the same opinion still.’ Ben Franklin’s words, not mine.