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Woodford suspension highlights failures of process

 

The fact so many investors remained in the Woodford Equity Income fund before its suspension in June highlights what happens when investors lack a proper process, Brian Dennehy has said.

Speaking on the FTAdviser Podcast, the chartered financial planner at Dennehy Weller said this was a problem which could also affect "experts" such as discretionary fund managers and advisers.

He said: "[A lot of investors] bought a story. The problem with when you don’t have a clear process for buying any investment is that you then don’t have a clear process for knowing when it’s failing.

"The problem for a lot of those people, and this is true for a lot of the experts who remain invested in that fund, […] they didn’t have any process underlying that for having recommended him in the process."

Woodford's Equity Income fund was suspended on June 3 after a sustained period of outflows, amounting to as much as £9m every working day in May.

The fund remains suspended for the foreseeable future as the investment manager readies it to meet redemptions for when it reopens.

Over the past three years the fund has lost 22 per cent, while its sector, the IA UK All Companies, has gained 30 per cent.

Also appearing on the podcast was David Baxter, deputy editor of Asset Allocator and Money Management.

Mr Baxter said that in October last year, only two or three DFMs still held the £3.4bn Woodford Equity Income fund, which has suffered from poor performance for several years, and that by April this year, no DFMs held the fund.

He said: "When the property funds gated back in 2016 DFMs were criticised because they had the first mover advantage, they had the specialism and a lot of them got out of those funds first, allegedly.

"They were criticised because that was seen as leaving more vulnerable investors in, but equally it may be a good thing because a long time in advance they have managed to see the problem and steer clear of it."

Each week, FTAdviser will be joined by a guest from the industry to discuss the week in news and pressing industry issues.

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damian.fantato@ft.com