The Woodford effect

There couldn’t be a more accurate statement in the investment world than what goes up, can also come down. In 2007, those that had plunged all their cash into property, funds or bricks, learned this the hard way, and this week, contrarian “star” investor Neil Woodford, was brought to his knees.

A prolonged period of poor performance in his Equity Income fund resulted in a mass withdrawal by his investors. The fund’s assets plummeted to £3.7 billion in a matter of weeks and on Monday it was suspended, locking the remaining investors in.

Mr Woodford has long been considered one of the most prolific stock-pickers of his generation, having spent 25 years at Invesco delivering blockbuster returns.

In 2014, he set out on his own and again built a following that saw his boutique vision transformed into a multi-billion-pound asset management business.

Throughout his career, his contrarian approach has been subject to great criticism. He hunts for undervalued businesses, flaws in market pricing and underdogs that have been cast aside by most managers but for him have a flicker that will eventually spark a flame.

Many claim that stock-picking is a skill, others an art form. What is clear is that even the best don’t get it right all of the time.

This is Mr Woodford’s day job – he spends hours researching, days and weeks getting to know the ins and outs of a potential investment before making a final decision.

Depending on the type of investor you are, you can either put a chunk of your faith in one fund manager’s basket, or spend your days locked in a room reading company reports and analyst notes to identify the perfect investment to trade.

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For those with less time to research, analyse, invest and watch, these approaches build a diversified investment portfolio that reduce risk over the long term.

For Mr Woodford, there is no telling whether his latest string of investments has been wrong, or if their transformation from underdog to top dog is simply taking longer than he anticipated.

What we do know is that a lot of investors have cash waiting on the side-lines for something that will provide a half decent return – and there are options other than Mr Woodford available.


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