By Robin Powell

Make no mistake, this is a landmark week in the history of British fund management.

Yes, there’ve been City “stars” who have fizzled out over the years. But surely none has crashed to earth in quite such dramatic fashion as Neil Russell Woodford CBE.

Woodford, it was revealed earlier this week, has been fired from his flagship fund, Woodford Equity Income, which was gated in June after years of dismal performance, and the fund shut down. The fund’s assets are to be liquidated, but according to the FCA  investors will have to wait until January to get their money back. Suffice it to say, it will be substantially less money then they originally invested. It has since been announced that Woodford’s company, Woodford Investment Management, is to close down completely.

An industry shaken to its core 

Adrian Lowcock, head of personal investing at Willis Owen, summed it up when he told the Financial Times: “We have seen the complete demise of the most famous fund manager the UK has seen for years… This collapse is on a par with the implosion of New Star at the height of the financial crisis, and it will shake the funds industry to its core.”

It is indeed a rude awakening — including for Mr Lowcock, who in previous roles at Architas and Hargreaves Lansdown was one of Woodford Equity Income’s most outspoken advocates.

I’ve spent some time in the last few days looking at what was written about Woodford and the Equity Income fund at the time of the fund’s launch in June 2014 and in the months that followed. What is so extraordinary is not just how much coverage there was, but the fact that it was almost universally positive. There were frequent references to “the Oracle of Oxford” and Britain’s answer to Warren Buffett”.  Even the BBC described him as “the man who can’t stop making money”.

The role of Hargreaves Lansdown

What’s also very noticeable is how much of the coverage emanated from Hargreaves Lansdown.

Interestingly, many of the articles published on the platform’s website around that time have since been removed, but many remain. In one, the company’s founder Peter Hargreaves calls Woodford “one of the most gifted fund managers I have ever met”. Other HL commentators lauded his ability to “get the big calls right” and to “shelter money from the worst of market falls”.

Mark Dampier, Hargreaves Lansdown’s head of research, was quoted again and again in both the trade and mainstream press. One distinguished newspaper even gave him his own weekly column.

Dissenting voices 

Yes, there were a few dissenting voices. I regularly wrote on The Evidence-Based Investor about the folly of joining the stampede into Woodford’s funds. Indeed a journalist Financial Times journalist later contacted me to say thank you for persuading him and his partner to take their money out before it all went pear-shaped.

But those of us who did express concern — Paul Lewis from BBC’s Money Box was another one — were drowned out by Woodford enthusiasts. Responding to my suggestion that the academic evidence concludes, overwhelmingly, that winning funds are all but impossible to spot in advance, a well-known adviser wrote an extraordinary article in The Scotsman headlined Academics know nothing about investing.

I don’t mean to sound smug or clever. I had no reason to believe that Woodford would perform quite as badly as he did. I was just pointing out that the odds were heavily stacked against him beating the market on a cost- and risk-adjusted basis over any meaningful period of time.

Substantially worse off today 

In the event, Woodford wasn’t just beaten by the market; he was absolutely trounced by it. Apart from the worry that his investors have had to endure, and will continue to do so, they are substantially worse off today than if they had simply ignored the hype and invested in a low-cost index tracker.

Let’s hope that this whole sorry episode makes people think rather more carefully before entrusting their money to a heavily marketed active fund manager. 

But memories are short. This is just the latest in a long line of investment fiascos, and it won’t be the last.

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Robin Powell is a freelance journalist and editor of The Evidence-Based Investor.

In the UK, Neil Woodford is investing Royalty. He famously outperformed his peers over many years as manager of the Invesco Perpetual Income Fund. When, five years ago this month, he set up his own fund, the Woodford Equity Income Fund, it was billed as the fund launch of the decade.

Alas, for tens of thousands of investors taken in by the PR and marketing hype, it hasn’t worked out as planned. The fund’s performance has been consistently dreadful and, one after another over the last few months, Woodford’s biggest clients have been withdrawing their money. 

Last Friday, the Kent County Council pension fund committee announced that it too decided to cut its losses, and yesterday, Woodford and his fellow executives took the highly unusual step of suspending trading in the fund, blocking further investor withdrawals until further notice.

Suddenly everyone has an opinion on Woodford and why the fund was doomed to fail. A simple Google search will show you that some of the commentators and publications putting the boot in now once waxed lyrical about his stock-picking expertise.

We have spoken many times about our scepticism of the Woodford cult (and active fund managers in general) — the fact you can invest in an index fund at a fraction of the cost and the odds of reproducing his previous performance were always heavily stacked against him. But we take no pleasure in his downfall.

If anything good is to come out of this sorry affair, we hope it’s that we all learn a little humility.

Hugely intelligent though we are sure Woodford is, the idea that one person can outwit the collective wisdom of millions of market participants requires an enormous leap of faith. Very few people beat the market any more, at least not on a cost- and risk-adjusted basis or over meaningful time periods. Since the global financial crisis, not even Warren Buffett has managed to do it.

We desperately want to believe there’s someone out there, in the massively complex and random world of finance, who knows what’s going and who really can predict the future. But that doesn’t mean that person exists. Even if they do exist, the overwhelming evidence is that they’re almost impossible to identify in advance.

Its time for reflection, time for us all to be a little more humble, and a little more honest with ourselves. We include advisers like ourselves in that, as well as analysts, consultants, journalists, investors and, yes, fund managers too.

Strange though it seems to feel sorry for a multi-millionaire, you could actually do so for Neil Woodford. When you’re fêted for years as a genius, it must be crushing to have it gradually dawn on you that you probably aren’t one after all.

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