Julian Knight: Neil Woodford’s Invesco exit does not mean his funds are finished
Investors thinking of following manager out need to ignore the voices of doom
Personal Finance editor
Saturday 19 October 2013
Neil Woodford is leaving the fund manager Invesco Perpetual. Who is he? The closest thing this country has to America’s arch investor Warren Buffett. OK, he doesn’t hobnob with Bill Gates – he is actually based in leafy Henley-on-Thames and is quite an unassuming character – but he has over many years made hundreds of thousands of Britons considerably richer. I should let you know I am an investor too.
He has done this by following many of the maxims of Mr Buffett, investing long term in companies that prove to have an enviable record of paying dividends.
Mr Woodford’s techniques are far from rocket science: he looks at the numbers and then makes an overall judgement of a company’s positioning. He is not afraid to ignore whole sectors, most notably in the late 1990s when he ignored the siren calls of the massively overvalued technology sector, and again half a decade later when he got out of banks early and into more defensive stocks, so insulating his investors from the very worst of the crash.
He is someone whose decisions often look right in retrospect but perhaps not at the time, and as a result he has been raised to the status of doyen among fund managers and journalists alike – myself included, to a certain degree, in these pages. He has become so big as a brand that quite some time ago he outgrew Invesco Perpetual.
This partly explains the over-reaction to the news of his departure last week. It was almost as if company dividends were being abolished overnight and investors were going to enter a period of never-ending night. Companies that specialise in flogging funds to the public were queuing up to issue ridiculous “downgrades” of the post-Woodford Invesco income funds. Fortunately, as a unit trust, the funds’ price is entirely dependent on the value of the shares it in turn invests in – rather than market sentiment – or else there might have been a bit of a run on the fund.
More than a few suspicious voices were raised that the sales firms issuing these downgrades were doing so in the hope of creating the sort of market churn where Invesco investors look to move their cash elsewhere, triggering fees aplenty.
So what should you do if you are, like me, an investor in Mr Woodford’s funds? Well I advise you take the same cautious approach as he himself would with one of his investment decisions.
I can’t imagine him selling up off the back of hysteria. He would look at things dispassionately and understand that he is part of a wider team – that a fund is as much about ethos as it is the head honcho. There is no indication yet that the Invesco funds are somehow going to move away from their philosophy of buying into companies that offer the prospect of long-term dividend growth.
If Mr Woodford – like Warren Buffett – has a lesson for investors, it is all about spotting currents and swimming with them, rather than being distracted by noise and headlines.
ISAs work – so leave them alone
I am hearing some very worrying rumours that certain officials and politicians in the Treasury are pushing for a lifetime cap on the amount of money that savers can hold in an individual savings account. The figure of £100,000 is even getting some house room – which by the way would equate to a retirement income of a massive £20 a week if people were to try and live off the interest.
No doubt these are the same officials who gave us the pasty tax, because the idea of limiting ISAs is frankly hare-brained in the extreme and will bring in very little cash while sending out all the wrong messages about savings.
Whoever is thinking this up should understand there is a fundamental difference between ISAs and pensions (where no one has a problem with a cap of sorts) – which is that the cash in an ISA has already been taxed. The only tax-free element is in the interest earned or investment growth.
In what has been an almost unending story of muddle and decision by committee in financial services over the past 20 years (think life insurance ISAs, child trust funds, stakeholder pensions and, heaven help us all, CAT standards), ISAs have been a shining example of how to do things right . They are simple to understand, flexible and they work. In many respects, I prefer ISAs to pensions and would like to see the latter modelled on them.
If the Treasury were now to decide to add extra complexity to ISAs, it would be potentially disastrous for very little long-term reward.
ISAs should be left well alone.
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