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Weekend reading: Look who’s back

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What caught my eye this week.

Hard to believe it’s more than ten years ago that I wrote – slightly tongue-in-cheek – about how I was betting against Neil Woodford.

The then-lauded fund manager had just handed back the reigns of the Edinburgh Investment Trust – one of several funds he ran as Invesco’s superstar manager – because he was opening his own fund shop.

Edinburgh’s share price fell from a 5% premium to trade at a discount to NAV in response.

But I reasoned:

Sure, a few [other] income investment trusts are on a discount, but my point is it’s clearly possible to run an income trust and be well-regarded enough for investors to pay more for shares in your trust than the value of its assets, even if your name is not ‘Neil Woodford’.

And my bet – and the reason I bought the shares after the sell-off – is I believe the same will likely be true of the Edinburgh trust at some time in the future.

In fact, I wouldn’t be surprised if the premium even comes back before Woodford has left in April!

Okay, it took until August – but I was right and it was a nice little trade.

However I kind of missed the wood for the trees.

Woodford’s stock

Most readers will know Woodford’s new venture went on to collapse within just a few years. It left a trail of broken-hearted followers in its wake. As well as a legal kerfuffle that was still dragging on this year.

Here’s a podcast recap from A Long Time In Finance. Or take your pick of two books written about Woodford’s rise and fall.

I can’t say I predicted this disaster in my 2013 piece. Although to be fair, who honestly could have?

The scale of the drama, anyway.

Me, I even admitted I thought Woodford had as good a claim as any to investing edge.

Although thankfully – and more on-brand – I said we couldn’t be sure. Even 25 years of outperformance at Invesco – which had made him the darling of middle-England savers – wasn’t definitive evidence of skill versus luck.

Also, I wrote:

I don’t think you should spend your time looking for the next Woodford though, any more than I think you should bet your two-year old grandson is going to be the next David Beckham.

Some scant few of us are touched by the gods of fortune, but you surely don’t want to gamble your retirement on it.

That second line is pretty portentous in light of what happened next.

Hey brother, can you spare a follow?

One person who is definitely not looking for the next Neil Woodford is… Neil Woodford.

Because the fund manager this week relaunched himself as a financial influencer.

Writing on his new blog, Woodford says:

My name is Neil Woodford. I am 64 years old, and I live in southwest England. I have worked in the investment industry since the early 1980s. You may remember me as the fund manager who avoided the dot-com bubble and the banking crisis and delivered index-beating performance for over 25 years, or perhaps as the ‘disgraced’ fund manager who presided over Woodford Investment Management’s collapse in 2019. Others may not have heard of me at all. Whatever your perspective, you may be curious about what I have to say about a wide range of economic, social, and political issues that impact our everyday lives.

Unfortunately, much of the commentary I read about the UK economy is long on opinion but critically short on data. It is often factually wrong, perhaps because established narratives are too willingly accepted. What is clearly severely lacking is data-supported information and analysis.

The economic analysis and commentary in Woodford Views will focus on relevant facts and data without censorship from editors, pressure to toe a particular line or consensus thinking.

Well you’ve gotta admit the lad’s still got chutzpah coming out the Wazoo. There’s even a dose of 2024-style post-truth anti-mainstream posturing in there.

Only 93 followers so far on Instagram though. The struggle is real.

Glass fund houses

We can surely guess how those who’ve pursued Woodford in the courts feel about this development. Or those who lost money with his funds. Or, worse, who waited for years just to get their money back.

Me? I’m a complicated soul.

While it’s abundantly clear in hindsight that Woodford’s mixing of private and public assets was ill-advised in open-ended vehicles, it’s not like that hadn’t been done before. It still goes on today.

He was criticised too for loading up on unlisted holdings with his closed-end Patient Capital trust. But many investment trusts are languishing on discounts today in part likely because of their illiquid private assets, including giants such as Scottish Mortgage and RIT Capital Partners.

And while it’s now far harder to make the case for Woodford’ stock picking prowess in light of the disastrous run at his second venture, there is probably even another universe where economic circumstances turned differently and his contrarian bets were rewarded.

Not need to type angry comments at me! I know he earned millions selling himself as someone who could avoid such landmines but was ultimately paid for failure, given this disastrous outcome:

Source: Guardian

I’m just saying it’s a truism we only live through one reality but many other things could have happened.

If you like fund managers when they outperform, then you must at least acknowledge that such outperformance was possible because they – and you – took a risk that things would turn out far worse.

Sympathy for the devil

Even the likes of Buffett could have been wiped out in an alternative universe where, say, the US went to war with Russia in the mid-20th Century, or if his legal troubles of the early 1970s hadn’t been amicably resolved, or if a couple of key decisions during the Salomon Brothers scandal of the late 1980s had gone differently. And nobody’s track record is as a good as Buffett’s.

So yes, I too have read the stories of hubris and yes-man-ning in the Woodford Investment Management days. It all seems very off. I also agree it was ill-advised for him to go investing in blue sky nano-caps after making his bones – and his brand – as a large-cap fund manager.

But I can’t quite bring myself to write an apoplectic and hyperbolic op-ed about Neil Woodford the ‘finfluencer’ that would easily write itself.

(My co-blogger in contrast would surely have a field day.)

I don’t know, perhaps I think everybody deserves at least a chance of redemption.

I also recognise someone who can’t let go of a love of markets and the game. A fellow sufferer, perhaps?

Maybe it’s just the sheer brass balls of the man refusing to go quietly.

Or perhaps I pity anyone trying to make money from a new blog these days.

Why go there?

To be crystal clear, I understand anyone who splutters angrily at Woodford’s new venture. It’s almost surreal.

And I obviously don’t think anybody needs to invest money with Woodford or any other star manager.

Invest via a global tracker fund – or some other passive index funds – and you’ll never face being embroiled in fund manager drama ever again.

Have a great weekend!

[continue reading…]

A playing card club symbol to represent investment clubs

I hadn’t heard of an ongoing investment club for many years before a long-time Monevator reader – and member of the Patrick Investment Club – dropped me a line. Such clubs were common 20-30 years ago. And as David Patrick’s guest article below shows, they filled a niche that today’s more impersonal and often abrasive social investing options hardly replace…

For more than 25 years my extended family has been pooling monthly subscriptions of at least £50 into the Patrick Investment Club.

This club has had a profound impact in helping us learn about investing. It has also helped bring us together as a family.

Such is the interest, these days we’re more likely to all meet for the Club’s AGM than for Christmas lunch!

Clubbing together

The Patrick Investment Club was established in 1998 by six family members. My three brothers and I – then in our 20s – and our parents in their late-50s.

The club has since doubled in size and now spans three generations.

We spent our early years pouring over library copies of the Financial Times and Investor’s Chronicle trying to understand company valuations. We felt oddly confident back then that we could identify companies destined to be the ‘movers and shakers’ of the future.

Sadly none of us identified any of the FAANGS, though we did have one multibagger success in Imagination Technologies.

There were a few dogs, too. One, Island Oil and Gas, disappeared beneath the seas – along with our shareholding.

These days – and with total assets in the low six-figures – we’re a little more cautious. Some 70% of assets are held in a global equity tracker and 30% in three sector ETFs.

Why start an investment club?

Back in the day our investment club, like many others, was set up to invest in companies and help us learn about investing.

At our inaugural meeting we adopted a constitution to govern how we operate.

We also opened a club bank account with Barclays and of course an investment trading account – currently with Hargreaves Lansdown.

One golden rule that has persisted in guiding all our investments was inspired by our pacifist teetotal mother: absolutely “no guns, no booze, no porn”.

So we apply an ethical SRI screen, though we don’t take too close a look at exactly what we hold within our funds.

The price of entry

Family members invest at least £50 each month. Some invest up to £200.

Monthly investments are automated and free through our investment platform.

The club is run with a light touch by the three officers: Chair, Secretary, and Treasurer. These roles have rotated over the years between family members with one – this writer – having been an officer for the whole period.

The club’s investment strategy is reviewed at each AGM. We offer each other commiserations on our under-performers and congratulatory back-slapping when we occasionally outperform our global benchmark.

Monthly statements set out the current value of members’ holdings, subs received and any withdrawals, along with the change over the last one, six and 12 months.

Holdings are unitised to take account of subs and ad hoc withdrawals. Brief commentaries are included, noting how the club’s performance compares to the MSCI World index.

A more virtual investment club

Other than at the AGM, engagement from members is low – though any miscalculations are quickly spotted.

Given the number of members involved and their locations – spread across Glasgow, Nottingham, and rural Wales – the AGM these days is usually a hybrid of face-to-face and video-conferencing.

In the early years the AGM was always in person. It was usually followed by a meal out or other social activity, too. One year we felt sufficiently flush to hire a barge for the afternoon.

Accounting activity

The absence of any tax benefits for investment clubs means that any dividend and interest income, however small, needs to be notified to members each April for inclusion in their tax returns.

Members have largely adopted a buy-and-hold strategy. Capital withdrawals are infrequent. There’s perhaps two or three a year among the 12 members. Typically these have been to pay an unexpected tax bill, fund a cruise, or contribute to a deposit for a new home.

In the early years a hardship fund was established to gift or loan members money during more challenging times. For instance, funds were occasionally requested to help tide a member over between jobs or to fund vocational retraining.

Fortunately such support has not been called on recently.

The evolution of an investment club

Reflecting back over the last 25 years, the club’s investing style has evolved through three phases.

We moved from investing in individual equities to focus on actively managed funds, and then to our current approach of investing in global passive ETFs – with a slant towards particular sectors that we feel will outperform.

For the first 15 years until 2013 the club was invested in individual equities. These included M&S, Tesco, WPP, Severn Trent and St James Place – as well as the dog and multi-bagger mentioned earlier.

The second phase began after a friendly financial advisor reviewed our portfolio and recommended a shift into actively managed funds and bonds.

Over the next six years we built modest holdings in, among others: F&C Corp & Ethical bonds, First State Global Property, Henderson Global Care, Impax Environmental Markets, Kames Ethical Fund, First State China Growth, Henderson European, Neptune US opportunities, Old Mutual UK Small Companies, and Aberforth UK Smaller Companies Fund.

These choices often mirrored personal holdings of club members, such as the nod towards China and environmental funds.

Lessons learned

In retrospect we had far too many holdings. However we learnt how funds worked, their charging structures, and how bonds were priced. We also began to better understand our own attitude to risk. We even offered members a choice between contrasting portfolios for a few years.

In 2019 we embraced another major shift – this time towards passive investing in a single portfolio. This was partly down to members’ own personal portfolios taking on more of a passive slant and partly due to the influence of Monevator.

Active funds were sold and we increasingly concentrated on just one passive global equity SRI ETF held with iShares.

Additionally one of our younger members had begun a career in wealth management. They put forward a persuasive case to slant our portfolio towards clean energy, automation and robotics, and global healthcare.

We duly invested 10% of our total assets in each of three passive ETFs – one per sector. Annual rebalancing happens in the spring, usually after the AGM.

Three years in and our sector bets combined have made us a loss, though Automation & Robotics helped to minimise this with a stellar 38% return last year. With our AGM looming we’ll soon debate whether to stick to these sectors or switch elsewhere.

Many happy returns

The club’s annualised growth over 25 years is 9.5%. This means £100 invested at start in 1998 would now be worth £338.

By comparison over the last 20 years the MSCI World index has risen by an annualised 11.9%.

Reflecting on the last 25 years, family members have seen a huge educational benefit from belonging to the club. We’ve learnt about the mechanics of investing, how different asset classes perform, and the risks associated with those assets.

With a larger membership including two juniors giving a greater spread of ages, we’ve increasingly had to reflect on the effect of differing time horizons on our investing style.

Risk appetites also differ between us. Members view their club holding as one modest part of their overall wealth. If they feel uncomfortable being 100% in equities, they can balance this with personal holdings in less risky assets.

There is always a lively debate at the AGM on our investing style. Some members argue that we don’t have an edge in spotting out-performers and therefore need to embrace low-cost passive investing.

Others espouse a broader approach. They argue for the club to speculate with a greater variety of assets including specific companies, currencies, and commodities, to provide us with hard-won skin-in-the-game experience.

Currently the wind blows in favour of a largely passive approach.

Perks for members

The Patrick Investment Club has had an interesting impact on family relationships. We learn from each other regardless of age and life experience!

Several of us have gone on to manage our own ISA and SIPP portfolios. And as mentioned above, one younger member is even pursuing a career in wealth management – having been inspired by the club.

The club has also helped with family cohesion. Often the only time we all meet – virtually or in person – is at the AGM.

The democratic nature of the club – one member, one vote – is sometimes challenging for those with larger holdings.

Overall our investing club has had a hugely positive impact on the family. Having already embraced several younger members, it’s likely to continue going for another 25 years.

Thanks to David for his engaging story. And my congratulations to his family for being so wholesome – I suspect organs would be lost in any such bartering among my own tribe. But what about you? Have you ever been a member of an investment club? Would it work with your family or friends? For me a major drawback would be the lack of a shared tax-efficient wrapper. Let us know what you think in the comments below…


Our updated guide to help you find the best online broker

Attention UK investors! You know we created that massive broker comparison table? Well, we’ve gone back to the coalface and updated it in order to help you find the best online broker for you.

Filling in the nation’s potholes with a thimble would have been more fun. But it would not have produced a quick and easy overview of all the main execution-only investment services.

Investment platforms, stock brokers, call ’em what you will… we’ve stripped ’em down to their undies for you to eyeball over a cup of tea and your favourite tranquillisers.

Online brokers laid bare in our comparison table

What’s changed with this update?

With every update, we add a fresh comment to the thread below the broker table to highlight the key changes.

This time I’ve noted:

Most of the cost-cutting action is around ETF SIPP portfolios.

Freetrade has introduced an annual subscription fee for its SIPP of £119.80. As in: you get a reduced rate versus its monthly subscription fee if you pay for the whole year in one go.

That makes Freetrade the cheapest SIPP for investors with assets valued over £80,000.

Under £80,000, InvestEngine is now neck and neck with Vanguard on cost, but unlike the latter it doesn’t restrict you only to Vanguard ETFs.

I’ve added Robinhood UK to the trading platforms table. It’s only offering US stock trading in a GIA for now.

Finally, iWeb is waiving its £100 account signing-on fee until 30 June. The offer is well worth a look if you hardly ever trade or fancy pulling off the ‘cheapest stocks and shares ISA hack.’

See the ‘Good for’ column of the table for a summary of which platforms have an edge for what.

Or better yet study the table closely to find the best online broker for your situation.

Who’s the best broker?

It’s impossible to say. There are too many subtle differences in the offers. The UK’s brokers occupy more niches than the mammal family. And while I know which one is best for me, I can’t know which one is right for you.

What we have done is laser focus the comparison onto the most important factor in play: cost.

An execution-only broker is not on this Earth to hold anyone’s hand. Yes, we want their websites to work. We’d prefer them to not screw us over, go bust, or send us to the seventh circle of call centre hell. These things we take for granted.

So customer service metrics are not included in this table. It’s purely a bare-knuckle contest of brute cost for services rendered.

Why should DIY investors flay costs as if they were the tattooed agents of darkness? Because the last thing you need is to leak 1% in management charges. Especially not in light of annual after-inflation expected returns of less than 3% on passive portfolios for the next decade.

This makes picking the best value broker a key battleground for all investors.

Using the table

We’ve decided the main UK brokers fall into three main camps:

  • Fixed-fee brokers – charge one price for platform services regardless of the size of your assets. In other words, they might charge you £100 per year, whether your portfolio is worth £1,000 or £1 million. Generally, if you’ve got more than £12,000 stashed away then you definitely want to look here. Bear in mind that fixed fee doesn’t mean you won’t also be tapped up for dealing monies and a laundry list of other charges.
  • Percentage-fee brokers – this is where the wealthy need to be careful. These guys charge a percentage of your assets, say 0.3% per year. For a portfolio of £1,000 that would amount to a fee of £3. On £1 million you’d be paying £3,000. Small investors should generally use percentage-fee brokers. However even surprisingly moderate rollers are better off with fixed fees. Many percentage-fee brokers offer fee caps and tiered charges to limit the damage. But the price advantage still favours the fixed-fee outfits in most cases.
  • Trading platforms – brokerages that suit investors who want to deal mostly in shares and more exotic securities besides. Think of sites like Interactive Brokers, Degiro, and friends. Beware: don’t imagine zero-commission brokers are giving it away. Their services cost money so they’ll be making up the difference somewhere. Probably in less obvious fees such as spreads.

The table looks complex. But choosing the right broker needn’t be any more painful than ensuring it offers the investments you want and then running a few numbers on your portfolio.

Help us find the best online broker for all of you

The final point you need to know is that our table’s vitality relies on crowd-sourcing.

We review the whole thing every three months. But it can be permanently up-to-date if you contact us or leave a comment every time you find an inaccuracy, fresh information, or a platform you think should be added.

Thanks to your efforts as much as ours, our broker comparison table has become an invaluable resource for UK investors looking to find the best online broker.

Take it steady,

The Accumulator

Our Weekend Reading logo

What caught my eye this week.

Not one but two must-read articles for you this week. Less than ideal now the sun is finally showing its face, I know.

The first comes from the ever-reliable Portfolio Charts.

Inspired by the many criticisms that ‘safe’ withdrawal rate (SWR) research has overwhelmingly focused on US returns, Portfolio Charts conducted an incredibly deep dive into the SWRs of other countries – and also the myriad different asset allocation mixes you could have chosen to achieve them.

It’s a valuable read. Not because I think anybody should load up on any particular asset allocation that proved successful in the past – we do not know the future – but for the illustration of:

  • How a lot of different assets can work together to deliver a decent SWR
  • How, nevertheless, the resultant SWRs still varied quite widely

Today everybody should really have at least a somewhat globally diversified retirement portfolio. So to that extent, individual country returns are moot.

The point rather is to see again why global diversification is so valuable in the first place.

Unless you do have a perfect crystal ball, of course. In which case buy the best and forget the rest!

(Spoiler: you don’t have a crystal ball).

It was different in their day

Secondly, a powerful article from John Burn-Murdoch on the growing wealth inequality that’s caused by wildly different outcomes when it comes to inheritance and property.

For more than 15 years I’ve been arguing on Monevator that inheritance taxes should be far higher to curb us from inching back into a feudal state. While many childless people get the point, those with biologically-activated selfish genes tend to say “maybe, but not my kids”.

I understand people love their children and want to do whatever they can for them. Also that preventing that can seem draconian and punitive.

But where do we want to end up as a society?

Well, here’s where we’re going:

As you can see, boomer parents – who rage indignantly about being ‘taxed twice’ when they die and their children get something for nothing – grew up in a different world.

Not only had many started building property wealth by their 30s, but the gap between the average boomer and those who were really making progress with property was also far narrower.

Burn-Murdoch notes:

The average millennial still has zero housing wealth at a point where the average boomer had been building equity in their first home for several years.

But the top 10% of thirtysomethings have £300,000 of property wealth to their names, almost triple where the wealthiest boomers were at the same age.

These differentials are the result of wealth becoming increasingly hereditary:

Bee Boileau and David Sturrock at the Institute for Fiscal Studies found that more than a third of young UK homeowners received help from family.

Even among those getting assistance there are huge disparities, with the most fortunate 10th each receiving £170,000, compared with the average gift of £25,000.

I suppose it’s possible this is a one-time enrichment caused by the spectacularly lucky lives of the Boomer generation in the US, UK, and Europe. There’s signs that the generational wealth escalator has flatlined.

So perhaps the feudalisation is a one-off event? Bad, in my view, but maybe it won’t get worse.

The robber barons next door

But what if it does get worse?

Do we really want to be in a situation in 30 years where it almost doesn’t matter where you study, what job you get, or how hard you work – for the average person whether you can buy a nice home is not a reflection of your efforts and talent but how well your grandparents did with property in the 1980s?

I’d tax the recipients of inheritances at their highest rate of income – so 45% for those enjoying large windfalls in a particular year – perhaps after a modest allowance of £20,000 or so, as a sop to the atavistic realities.

No it’s not a perfect solution but what is?

Have a great weekend.

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