I can completely understand why so many investors who have fallen out of love with Neil Woodford based on his performance of the past 18 months.
His Income fund trails well behind the Investment Association All Companies, and his Patient Capital has been dubbed by wags in the City ‘really bloody Patient Capital’.
But I can also comprehend why he might feel aggrieved with the flak he has received.
In an interview with researchers Square Mile, Mr Woodford opened up about his underperformance: “People either think you’re an idiot, or you’ve lost it.”
But Mr Woodford goes on to make a brilliant case for his defence. To sum up, it’s that short-term speculators have hijacked the stock market. He claims they are using it “as an avenue for playing out some sort of betting game.
“The short-termism is poisonous and destructive to long-term saving.”
His star may have faded a little, but when Mr Woodford talks, everyone listens.
The passives are coming for the likes of Mr Woodford. This is where fund management giants need to get real on fees.He’s bang on the money. Take a trip in any cab, walk round any office, chat to anyone at the bar of your local boozer; these days everyone seems to be involved in some kind of market trading.
Trading platforms such as CMC, IG and Plus500 have made it easy for anyone to become a market speculator. I was at the counter of a local grocery store in south-west London the other day and the guy behind the till was trading on his mobile phone.
Everyone’s an expert. Except of course, actually, no one is.
The fundamentals of saving for retirement are being destroyed by people who think they can make a killing in an instant. And that’s no way to build a sensible retirement plan.
He rightly fears the abilities of active managers, and the focus on long-term growth, are being undone by the loud minority influencing the market daily. I suspect they’re also responsible for the sometimes sharp – and often overdone – drops in individual equity prices.
What Mr Woodford doesn’t go into is the very real threat to fund management from the rise of trackers. The passives are coming for the likes of Mr Woodford. This is where fund management giants need to get real on fees. Portfolios built on cheap trackers are undermining the work of the stockpicker.
Charging too much for their talents is just going to undermine their futures further. As in so many ways, Mr Woodford has been a leader in this area.
He is convinced the real fundamentals of the market will return and – just as in 2007 – that will leave him best positioned to outperform the crowd. Only then will we see the real value of his skills.
Don't throw the banks out with the bathwater
Meanwhile, Mr Woodford’s rival Mark Barnett – the man now running the fund the star manager left – has ditched banks.
What goes around comes around. Mr Woodford famously did the same before 2007 in the belief the market was overblown.
Mr Barnett believes heavy regulation and the threat of technological advances will weigh heavily on the sector.
It’s hard to disagree with this thesis – you only need see TSB’s utter failure to switch its IT system to a new platform to recognise the work still to be done. Plus, upstarts such as Monzo are leaps and bounds ahead of the big names with their banking apps.
But I’d be inclined to feel that share prices of banks are underdone.
Lloyds, and more to the point, RBS, have a value still languishing little above the floors they hit in the financial crisis. Lloyds is now back in public ownership and has a massive market share, RBS is slowly heading that way and has a huge foothold in corporate finance in particular.
The merger of Clydesdale and Virgin also shows there’s still growth to be had.
And bank customers are notoriously sticky. Banks’ stocks may have a long way to go yet.
Alien agreements are impossible to understand
Ping! An email arrives informing me that my PayPal user agreement has been changed. Out of intrigue I open it – it is 60,598 words long. It would be quicker to read a novel like Of Mice and Men.
PayPal’s agreement is packed with utterly incomprehensible jargon.
I can think of dozens of insurance and bank contracts that waffle on for far longer than they should. It’s meaningless and unhelpful.
Any judge would kick them out in a second if challenged, as no reasonable person could read one.
These types of contract are a ghastly symptom of how the compliance men have taken over the planet.
James Coney is financial editor of the Daily Mail
