When Hubris meets Nemesis

This week we saw the Woodford saga come to an end as fund administrator Link wound down the Equity Income fund.

While it’s easy to jump on “blame the manager” bandwagon, some of it should be shared to those who continued to recommend fund even as the level of unlisted stocks held within the portfolio crept up.

Yes, funds will open and close, but ultimately it will be the investors who get burnt. At the very least they should have been made aware that their star manager had turned, betting on lottery-like stocks rather than the large cap companies that had built his reputation in the first place.

Another thing investor should be aware off is that daily dealing open-ended funds aren’t always a place where you can withdraw your cash at any moment. While this is the case for most equity funds it may not be a case for all asset classes: after all it is difficult to sell a building within a day.

And while there are cash buffers within physical property funds, during the bad times when there is a rush to exit, those reserves tend to quickly evaporate.