News that the disgraced fund manager Neil Woodford is plotting a comeback may have raised eyebrows in the City, but he is not the first stockpicker who said sorry for his vehicle’s performance, and who did manage to stay in the game.
Woodford gave an emotional interview over the weekend in which he apologised for the collapse of his investment company and said he is working to set up a comeback firm by launching a Jersey-based fund focused on biotech assets.
It was not, however, the first time Woodford apologised. In September 2017 he said sorry for a spell of underperformance, which ultimately was not turned around. At the time he even responded to critics who asked whether he had ‘lost it’.
“Investors are free to believe I have lost it,” Woodford said back then, “but I don’t believe I have lost it. I believe I have the right portfolio [and] the right strategy to deliver the right returns to our investors over the medium and long term.”
Woodford joins the ranks of a handful of other City fund managers who made an apology over the years, as assessed for City A.M. by Kyle Caldwell, a collectives specialist, with performance figures that were sourced from FE Analytics.
Many in the City will undoubtedly remember Anthony Bolton, as he was regarded as one of the best investors of his generation. Bolton steered the Fidelity Special Situations fund to annual returns of around 19 per cent during his 28 years at the helm.
He stepped down in 2007 before returning to fund management in April 2010 to run the Fidelity China Special Situations investment trust, a market he had not previously invested in.
However, Bolton struggled to replicate his stock-picking success overseas, leading him to issue an apology to investors in November 2011. At the time he told shareholders that his optimism on China had been “severely tested”.
What happened next?
Fidelity Special Situations managed to just about turn a profit by the time Bolton retired at the end of March 2014. Since Bolton’s departure performance has improved, but to put this into context it should be noted that China’s stock market has for large periods been buoyant, whereas under Bolton’s stewardship overall market conditions were much trickier. Since Dale Nicholls took over on 1 April 2014, the trust is up over 400 per cent.
Prior to 2010, Tom Dobell, manager of the M&G Recovery fund, outperformed the stock market for ten consecutive years before performance took a turn for the worse.
In October 2014 he issued an apology to investors, stating: ‘We are very aware the fund has lagged the market in recent times, and I am sorry for that.’
Dobell, however, insisted he would not change his investment style, which is to buy out-of-favour shares that are ‘unloved’ by the market.
What happened next?
The underperformance continued. Last September it was announced Dobell would step down from the fund and leave M&G at the end of 2020.
Rhodes is another manager from M&G’s stable who took the unusual step of apologising, writing an open letter to investors about six years ago. He had overseen the M&G Global Dividend fund since its launch in July 2008.
In the letter, dated January 2015, he noted that “open admission of failure in this industry is rare” and offered up four reasons why the fund underperformed in 2014, including the ‘speed of the decline in the oil price’.
What happened next?
Performance has been more steady than spectacular. Since the start of 2015 the fund is up 82.3 per cent, while the average global fund (the sector it sits in) is up 100.1 per cent.
It has, however, outperformed income-oriented global funds. The Investment Association’s (IA) global equity income sector has returned 62.8 per cent over the same period.
During the financial crisis Carl Stick’s Rathbone Income fund was one of the worst performers among UK funds, losing 34 per cent in 2008. He was not alone in losing money that year, but he does stand out in being one of the few fund managers who have spoken candidly about the mistakes made and vowed to learn from the experience.
In short, Stick admitted too many of his holdings were highly leveraged and promised to take a more risk-based approach in future, buying quality businesses at the right price.
Reflecting on the credit crunch in an interview with former trade title Fund Strategy in October 2012, Stick said: “I’m sorry we lost that money, but you learn by experience.”
What happened next?
Rathbone Income has outperformed the IA UK Equity Income sector over the past decade, returning 95.6 per cent versus 74.8 per cent.
‘Normally they hide’
With regards to Woodford, he disclosed over the weekend that he was forced to sell his £30m home but stressed he is determined to return to investment management as “I don’t want to, for the rest of my life, hide away and beat myself up about things from the best part of two years ago.”
This is exceptional, commented Caldwell. “Normally when a fund manager underperforms, they hide and hope their investors haven’t noticed.”
“It is rare that the opposite plays out, and even rarer that as well as offering up an explanation for the spell of poor performance there’s also an apology,” he told City A.M.
However, Caldwell stressed that “the consensus view is that fund managers cannot be expected to outperform all the time, they are human after all, so mistakes will be made. In addition, there will also be periods when their style will fall out of favour.”
Woodford, meanwhile, has pledged not to repeat the mistake of investing ordinary investors’ money in illiquid stocks, which contributed to the collapse of his former business.
He has advanced plans to set up an investment vehicle in Jersey – Woodford Capital Management Partners – which will focus on companies in the biotech space.
Nevertheless, his announcement to make a comeback in investment management prompted the FCA to issue a warning, late last night, saying the financial watchdog will perform character assessments in its decision over whether to grant a licence to his new outfit.
Moreover, FCA enforcement director Mark Steward stressed the FCA is “in contact with the Jersey Financial Services Commission (and agreed with them that we will both share information on any application made in our respective jurisdictions.”