Forget the arguments about whether to sell or hold the Neil Woodford funds. What I want to ask is how you create a fund offering – as it seems Woodford wants to do – that is aimed at long-termism?
There is no need to go into the investment methodology – the record shows Woodford has that well sorted. But how do you package and sell long-term investment to individual investors and advisers? That is a much harder question.
True, there are boutiques such as Lindsell Train, Troy and Baillie Gifford that follow the long-term star, but they do not sell a lot in the retail market. Even M&G – not as resolutely long-termist as it used to be – struggles to persuade advisers to keep the faith with resolutely long-termist Tom Dobell’s Recovery fund.
I have a few suggestions for Woodford to help him refine his proposition:
- Offer your funds in closed-end form. The industry’s obsession with liquidity is a fantasy. There is no exit from doomsday. Open-ended funds investing in illiquid assets – commercial property and corporate bonds come to mind – are sure to suffer stops in adverse conditions when investors simply cannot sell. The same is true of small-caps in most stock markets. Open-ended funds pretend away a lack of liquidity and hide the bid-ask spread. Grown-up long-termist investors need to see it naked, which is what you get with closed-end.
- Price all your funds at £10 per share or higher. The kind of investor who thinks 10,000 units at £1 are better than 100 units at £100 is not one you want in your fund at any time.
- Publish your full portfolio on your website at all times. If you are long-termist, you will not worry about the short traders betting against you. And if the opposite happens and ‘me-too’ investors bid up the price, trust the market to correct the anomalies.
- Explain everything. Explain your selection methods and metrics. Explain why you like the stocks you hold. Explain why you like what they are doing and not doing, why you do or do not like the management, the products, the sector, the business model. This is how you educate investors to understand what long-termist means. Publish all this on your website.
- Treat advisers and investors alike. Give them exactly the same information at all times. Publish any presentations for advisers on your website. If advisers bring anything to the party, it is not extra information you have made available only to them, but their genuine understanding of your methods and funds gleaned from their own efforts. That might be worth something to their clients.
- Walk the talk with investors. Be long-termist with your investors as well as with your investments. The more they trust you with their money, the less you need to charge, so slide your charges downwards as money under management rises. Talk to investors. Most fund advertising is aimed at advisers and assumes they are the gatekeepers. In the post-RDR world, that is less and less true for more and more money.
Many advisers will hate the idea that investors can form opinions without their help, but that is what long-term investors do. Tell it straight. A bit boring is fine as real investors do not need rap.
So do I get my launch discount now?
Chris Gilchrist is director of Fiveways Financial Planning, the author of the Taxbriefs adviser guide The Process of Financial Planning and edits the IRS Report