Neil Woodford, Invesco Perpetual’s star fund manager shook the investment world this week by announcing he was leaving to form his own investment management company.
I will begin with a disclosure. Today I have switched out of the Invesco Perpetual High Income Fund into the Liontrust Macro Equity Income Fund.
Almost all Financial Advisers, Journalists and Fund Managers are saying ” no need to panic” “take your time” “no need to sell” and similar things SO WHY DID I SWITCH?
What do you think would happen if they said: SELL SELL SELL?
Neil Woodford manages £30 billion of our money. If we all sold and £30 billion shares hit the market it would be the biggest stock market crash of all time. So it’s in no one’s interest to tell us to sell. But it’s not their money – it’s our money!
So here is why I have switched:
- My investment strategy is quite clearly only to hold funds in the Hargreaves Lansdown Wealth 150 list. The fund has been removed from that list. I don’t make exceptions so it has to go. SIMPLE!!!
- There are other funds in the same sector on the Wealth 150 list I don’t hold so I selected another fund from that list and my overall strategy didn’t change.
- £34 billion is a hell of a lot of money! If only a small percentage of holders sell the new Manager has an impossible task on his hands. Managing a fund with healthy cash inflows is a doddle compared to managing a fund with big cash outflows. Football fans – think about it. Do you want your manager to have cash to buy new players or do you want him in the position where he has to sell to balance the books???
- It is by no means normal practice for Hargreaves to remove a fund from the Wealth150 list just because a Manager has left. There are no circumstances in which they could tell us to sell but they have left a pretty big clue by removing the fund from the Wealth 150 list.
- The only detailed research I have been able to find on the performance risk when a Fund Manager leaves is from Cass Business School:
Using our unique database of UK fund manager changes and event study, managed fund industry and to highlight the effect a fund manager change:
“On observing individual funds within the 10% of top performers, we find that some of the funds after the change in fund manager continue to outperform, but only for a very short period (a month or two to three months) until performance starts to decline. This indicates that the manager’s portfolio decisions continue to have a positive impact after they have left, but eventually this positive influence wanes and is generally not replicated by the new management. This leads us to conclude that the performance of the past winners does not persist and the impact of the fund manager being replaced played a significant role in the deterioration”.
So what should you do?
I don’t give advice. It is your money and you will look after it far better than anyone else. All I can say is that there are many good funds to choose from. What you need to weigh up are whether the risks of “sticking” are higher than the risks of “switching”. My funds are in ISA and Pension Funds so there are no tax issues to consider. That may be an issue for you.
Watch out for switch fees – many advisers still charge even if the switch advice has not come from them.
What you will see in the Press is put there by the Financial Services industry which doesn’t want to rock the boat. Trust your own instinct. It is much more reliable!
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