Neil Woodford has been in the news for all the wrong reasons. Once the golden child of private investment, his tiara has slipped and millions have poured out of his fund.
The demise of the Woodford reputation and his Midas touch is not, and should not be, a surprise. His is not the first fund to falter, nor will it be the last. The traditional method of investing, and the fees involved, are what is putting off a new generation of investors – reinforcing their belief in cryptocurrency.
In the space of just seven days, Woodford’s £3.7 billion equity income fund feels like it is all but over. Everyone awaits the lifting of his self-imposed 28-day suspension to see how much more cash will be withdrawn. From big pension funds like Kent County Council, to high net worth investors, many appear to have lost confidence. Like a run on a bank, folks will be queuing to withdraw their cash. But, rather than stick the boot into this multi-millionaire fund manager at a difficult time for him and his staff, I’d rather widen the lens on the whole investment sandpit.
First, the with-profits endowment went bang. This was a staple of many starter investors. It played out well with mortgages also. I recall my first financial advisor telling me to double up on my 30-year with-profits endowment, so I could pay off my mortgage early. In effect, this would save me thousands on mortgage interest. Thirty years ago, big banks and building societies were not yet offering online calculators on how to save money by making overpayments. They, too, were stuck in their ways. Thirty years meant 30 years and there was no parole for good behaviour. Alas, the with-profits endowment is no longer in vogue as the payouts could never be sustained. It was over-hyped by commission-hungry advisers and fee-hungry providers.
Then there were unit trusts and a whole raft of investment products that all promised big returns. But, they appeared only to make those selling them rich. That is why what is happening now with Woodford and his fund is just another reminder of why we need an alternative. This is why the under-30s want a new vehicle and roadmap for their financial futures. Enter cryptocurrency and, of course, Bitcoin.
There are no glossy brochures promising “guaranteed” returns from Bitcoin. Well, that doesn’t seem to hold much water in the Woodford world or indeed the crypto world. At least, in defence of cryptocurrency, it is still very new and embryonic. That has seemed to be the problem for more seasoned investors. Up until now.
Recently, the big boys and girls have been taking a second look at cryptocurrency. One example is Thomas Lee, a managing partner and head of research at Fundstrat Global Advisors. An accomplished Wall Street strategist with more than 25 years of experience in equity research, he has been top ranked by Institutional Investor every year since 1998. Prior to co-founding Fundstrat, he served as JP Morgan’s chief equity strategist and as MD at Salomon Smith Barney. I guess he was good enough to manage “old money”, so should we listen to what he has to say?
Lee, like others in the US, is predicting a bright future for Bitcoin. He believes that the coin could hit $40,000 before the end of 2019, albeit it has to hit $10,000 first. I haven’t seen his crystal ball, but I’d guess it is just as shiny as Woodford’s. The point is, perhaps we should be looking outwith what we have always invested in and diversify, even if it looks unsound. After all, at one point in time, someone set up at a gold exchange creating value in this metal. Perhaps cryptocurrency is just the 21st century alternative.
With Italy throwing its toys out of the pram on currency and debt, coupled with a potential Euroland slow down, Brexit and China-US trade wars, not to mention big equity funds going belly up, I can see why many are looking beyond this to new age investing.
I just hope they pick the right crystal ball.
- Jim Duffy MBE, Create Special