Peter Hargreaves-backed asset manager Blue Whale has criticised Woodford Investment Management’s decision to publish all its holdings, arguing that the move is not necessarily beneficial to clients.
In an exclusive interview with Money Marketing six months after the new firm launched, fund manager Stephen Yiu says it is a “distraction” for retail investors to see all of the holdings of a fund, an unusual exercise done by only a few fund houses, including Woodford IM.
As widely reported in recent months, Woodford’s flagship fund, the Woodford Equity Income fund, lost more than £1.3bn in 2017 as investors were concerned about its under-performance, the product of several bad calls in the market.
Yiu says: “Woodford is an exception but he is probably learning now that he maybe shouldn’t have [published all holdings].
“Also, for Woodford it is not about the well-known companies that have not done well, he has got a lot of smaller companies, which are not liquid and unquoted. You don’t share these companies unless you really think you are right. If you are wrong you need to get out of that investment.”
In 2014, Neil Woodford’s newly-launched business started to publish the full list of the holdings in the Woodford Equity Income fund, uncovering the lesser-known firms it backed. A month after launch, the fund had attracted more than £1.6bn from investors.
At that time, talking about disclosure, Woodford IM chief executive Craig Newman said investors should know where their money is invested regardless of the size of the company.
He said: “This is why we are breaking away from the industry norm and publicly disclosing the fund’s entire portfolio, rather than just the top 10 holdings.”
However, funds of very large size, such as Woodford’s, would struggle when they need to sell a big holding position as well as adding excess returns through stock selection when it has large inflows.
Yiu says: “The market is quite brutal, you have a lot of hedge funds, they know you are getting redemptions. It is about the smaller companies and you know you can’t sell them if you own a 10 per cent stake in them.”
Yiu, a former Artemis UK equities fund manager and Hargreaves Lansdown analyst, says for the time being he does not intend to publish all the holdings in the Blue Whale Growth fund, but only the top 10 stocks, in line with most fund managers.
He says: “We are looking at different ways to communicate with clients and educate them, so we will focus on the top 10 holdings for now. You want to talk about investments that you know well and in order to come up with the top 10, we hope that it is not going to change for a long period of time.
“You need to find exceptional companies at a reasonable price, and that doesn’t come up every day. It would be a distraction for the market [to show all holdings].”
Blue Whale Capital was registered by Yiu in October 2016 with Peter Hargreaves serving as its chairman and a major shareholder.
The Blue Whale Growth fund, initially seeded by Hargreaves with £25m, is a bottom-up concentrated fund of 25 holdings, with 65 per cent of the portfolio invested in large companies in the United States.
Yiu says the minimum holding period for “exceptional” companies making the top 10 league would be up to three years, unless “some fundamental changes” occur.
He says: “In the retail market, which is not very educated, if you share a lot with people, they probably don’t get the right message.”
Yiu says Blue Whale wants to challenge the industry by publishing its own research on the companies it holds and that all clients can access. He says the use of sell-side research is only employed as a “reality check” on the firms they own.
Yiu says: “We publish research on our top holdings, such as PayPal and Electronic Arts. We have a standard report on how we think a company should perform where you will not see anything about valuation or share price.
“The reason why we put our research online is that you don’t see it anywhere in the retail space. Me and Peter [Hargreaves] feel people need to be educated. One of the reasons Hargreaves Lansdown is so popular is because they make investments easy for retail investors.
“Communication from fund managers is quite opaque. The fund manager will speak to the journalist, the wealth manager or IFA but they won’t speak to the people on the high street because they don’t care, they don’t want to.”
As of February, the Blue Whale Growth fund had £42.5m under management and has received £21m inflows since launch. The fund’s ongoing charges are at 1.17 per cent.
Yiu says: “We have been slow to get more money. The fund was only recently added to three platforms. What is difficult is to get on platforms as it is very time consuming. They are too busy with Mifid II – that is a constraint.”