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News broke this morning that the beleaguered Woodford Equity Income will be wound up in January 2020, ending months of speculation on when or if the fund may begin trading again following its suspension in June.
ACD Link Fund Solutions said it was in investors’ best interests for the fund to be wound up as the process of repositioning the portfolio into more liquid FTSE 100 stocks had “unfortunately not been sufficient to allow certainty as to when the repositioning would be fully achieved and the fund could be reopened”.
With the board of the Woodford Patient Capital trust, set up by Neil Woodford in 2015, also perusing replacing its fund management team, Woodford’s career has hit a new low. He himself said in response to Link’s decision to wind down the Equity Income fund: “This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income fund investors.”
And what a shame this is for the industry. Woodford was one of the most celebrated fund manager of the late Nineties, Noughties, and early 2010s, bouncing back spectacularly from periods of underperformance.
Last year, when Woodford continued to back domestic stocks shunned by Brexit-scared UK equity investors on the view that these will outperform once there is an element of certainty on the Brexit outcome, it was easy to believe. He had gone against the market tide before plenty of times and come up trumps, why not this time?
Of course, we know Woodford’s demise this year wasn’t about which FTSE sectors he was positioned in, but as a result of investing in more and more illiquid stocks. Compared to his Invesco days of FTSE blue chips, he went completely off piste into the world of unquoteds.
I will be exploring the many repercussions of the Woodford fallout in the Wealth Managers Review 2020, particularly focusing on how discretionary fund managers dealt with concerned clients, whether they held the fund or not. Please send any reaction to today’s news on the fund wind-up to email@example.com
History has been made this year, what has happened with Woodford will be talked about in and outside the investment industry for years to come.
There will be many asset managers and wealth managers reviewing their processes and risk management committees to ensure nothing like this can happen to them, while the regulator will definitely have more to add to the conversation.
Investors trapped in the fund have the most to shout about. They have had their fingers burnt after putting their faith and savings with the one of the most renowned and celebrated UK equity fund managers and trying to convince many of them to part with their hard-earned cash again won’t be easy.
After this blog was first published, it emerged that Neil Woodford has resigned as manager of the Patient Capital Trust and announced the closure of Woodford Investment Management.
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The ESG conversation has changed dramatically in a short space of time. Just last year, research conducted by RiF during its UKAS 360 studies, a rolling quarterly study into the UK retail market, indicated that while investors had got their head around ESG or responsible investing, it was considered a ‘nice-to-have’ rather than a ‘must-have’.
However, this is quickly changing as investors wake up to the fact their investments and savings can have a meaningful impact on social and environmental issues just like their increased recycling and reduction in the use of plastic can.
Not just millennials
There have been a number of programmes and initiatives that have propelled the green movement.
David Attenborough’s Blue Planet and Greta Thunberg’s climate strikes have managed the difficult task of reaching a wide spectrum of age groups with powerful images of the ocean waves full of plastic (Attenborough) and statements such as this (Thunberg):
“Around the year 2030, … we will be in a position where we set off an irreversible chain reaction beyond human control, that will most likely lead to the end of our civilisation as we know it. That is unless in that time, permanent and unprecedented changes in all aspects of society have taken place, including a reduction of CO2 emissions by at least 50%.”
Additionally, following the success of the April protests Extinction Rebellion have chosen Good Money Week (running from 5th to 11th October with the aim of encouraging businesses to take action to turn ‘bad’ money ‘good’) to again “peacefully occupy the centres of power and shut them down” in major cities around the world including London as it further attempts to push climate issues further up the agenda.
All these efforts are working in the sense that our children no longer want to use plastic bottles or straws (#savetheturtles) and the UK government has banned said straws as well as cotton buds and stirrers from April 2020.
With more people than ever before being mindful in their impact on the environment, individuals are finally addressing this in their pensions and investment portfolios.
The change in attitude is reflected in the numbers; in RiF’s Responsible Investment Review retail intermediaries reported 74% of their clients were holding ESG/sustainable funds + socially responsible/ethical funds and indicated further interest for add more.
Asset managers have responded fairly well to demand so far – Morningstar data shows the number of sustainable fund launches climbed from 26 in 2016 to 104 new vehicles in 2018, and a further 168 new launches in just the first half of 2019. There are now 2,232 open-end and exchange-traded funds sitting in this area in Europe, with a total assets under management of £534bn.
And, we are only at the beginning: 86% of millennials are interested in sustainable investing, according to the Investment Association, while a new government-led study on financing the progress towards the UN’s Sustainable Development Goals (SDGs) has found that more than two-thirds of UK investors want their portfolios to solely support projects driving progress against the 17-Goal agenda.
Additionally, just this week Guy Opperman, the Minister for Pensions and Financial Inclusion has written to 50 of the country’s biggest pension funds asking them to disclose provide the ESG, stewardship and members’ views sections of their statements of investment principles, so that he can compile a record in order to monitor compliance and highlight best practice.
He said: “Pension funds are a powerful weapon in the fight against climate change. Despite some good work by a number of schemes, some are not acting. We need urgency on this vital issue from trustees and investment managers.
“New regulations came into force last week, I’m demanding that the remaining pension schemes and the fund managers they appoint stop shuffling their feet.”
The direction of travel is clear. Pressure for more ESG options in investment portfolios is coming from both the government and the end investor. While many asset managers are responding by incorporating ESG into investment portfolios and their business practices, those that aren’t should really be asking themselves if this is something they can afford to be left behind on.
Alongside the Responsible Investment Review here are RiF we are also launch the UK Responsible Investment Study (UKRIS) a regular study in this increasingly critical area. This study shall focus squarely on professional investors, retail and institutional, and their view of ESG and responsible investments.
This biannual syndicated study will truly be one of a kind, and as such aims to gather support from many asset management firms. For more information on this study email us here and the team will send you a synopsis of the project.