We have remained quiet on the Woodford affair, mostly because our views are shared directly with clients, rather than publicly.
Equally, we wanted to avoid commenting after the fact, when hindsight offers all the answers, yet it was foresight that really mattered to clients.
But, as we see the Woodford comments increasing and the subsequent pressure on clients and regulators mounting, we do worry that investors in funds, more generally, may extrapolate the issues they faced on this one strategy into all their selections.
What follows is hopefully not seen as lacking in empathy for the clients who are or were investors in the Woodford Equity Income fund.
Equally, we are supporters of certain remedies that can improve client outcomes, like moving to monthly dealing on some funds. And for the record, we suspended our fund rating well before dealing in the fund was suspended.
Firstly, let us state the obvious. Neil Woodford has successfully managed UK equities over long periods, taking a long-term view on stock selections that are dissimilar to the benchmark and often a lot less liquid.
He has also performed very poorly in the short term. On a sample size of one, these traits have not benefited clients inside the fund.
But we would argue that these are broadly the sorts of traits that clients should seek when investing in mutual funds, with the caveat that they invest in many funds rather than just one.
To elaborate, we fear a world after the Woodford saga, where investors start to reject these traits more broadly and start to: a) have shorter investment horizons; b) prefer active fund managers that hug benchmarks or own popular names; and c) sell the funds that have done poorly in the near term.
To reiterate, we look at evidence across all funds, rather than an individual fund, when making our observations. Let us set out some principles investors should keep to, despite Woodford.
Principle one: all else being equal, the evidence suggests that investors should have long investment horizons.
This is especially the case with equities, where near-term returns can be quite random, but long-term returns fairly reliable.
For example, the UK Equity Income sector has a range of returns over one year from consumer price index -35 per cent to CPI +38 per cent.
Over 10 years however, the range of outcomes is far narrower: since 1994, over any rolling 10-year period, the minimum annualised return was 1 per cent and the maximum was 11 per cent and the probability of beating inflation by 3 per cent a year (net of fees) was 84 per cent.
Principle two: Active managers that charge typical active fees (60-90 basis points) should rationally look different to the consensus.
The benchmark is a good example of the consensus.