Neil Woodford in the headlines…

If you read the financial press, this is big news. ‘Star fund manager’, Neil Woodford, stopped investors withdrawing money out of his Woodford Equity Income Fund on 4th June, after the sum total of investment withdrawn from the fund reached a staggering £560m in less than four weeks. Kent County Council wanted to withdraw a further £263m, but was unable to do so before trading halted.

Investment analysts have attributed this action to the significant poor performance of the fund over recent months. Neil Woodford was once the darling fund manager who could do no wrong.

A few years ago he was riding high when he left his employer, Invesco Perpetual, to set up his own company, Woodford Funds. With a reputation for having the midas touch, he’d built a large following amongst both retail and institutional investors, many of whom followed him to his new venture.

Once the blue-eyed boy, his public apology probably hasn’t gone far enough in the minds of some investors who are unable to withdraw their funds and are now nursing significant losses.

There are a number of issues at play here which, as trusted advisers, we seek to address when managing client portfolios.

Don’t put all your eggs in one basket

Investing is about managing risk and diversification is a key part of this. Committing all your money to one star investment manager is never a great idea. All of our portfolios have a huge spread of funds and shares to avoid these types of issues. It may seem boring but it works!

Good governance is essential

A robust governance process is important when managing client portfolios. When selecting funds as part of a portfolio, our established investment governance process ensures that these are regularly reviewed and action is taken where and when appropriate. This framework ensures that we act early on managing any potential risks that may impact portfolio performance.

Asset allocation is a key driver to performance

It is not just about selecting the right funds. When constructing client portfolios, we take into account the importance of asset allocation. This is the split between different types of investments such as UK and overseas equities, fixed interest and cash. Asset allocation is as important as fund selection.

Value is key

The Woodford fund is not cheap. It has been an eye opening exercise for many including those who pushed the fund who didn’t know the true cost of investing. At Xentum, we believe cost and value are two key factors that are crucial to long term returns. In some circumstances, it may be worth paying more for your investments, however this comes with the caveat that the fund managers must provide value well in excess of cost. This is why the Woodford fund has never been anywhere near a Xentum portfolio.

If you have any queries regarding your portfolio or would just like to find out more about our investment approach, do not hesitate to get in touch.