If investors and their advisers expect and believe a fund manager will win all the time, writes Nicola Cornish, they are destined to be disappointed - no manager wins all the time and Neil Woodford is no exception
In times such as these, we must remind ourselves that no fund manager can win all the time - it is just not possible. Periods of underperformance are statistically normal and to be expected - in fact, not only should these periods be expected, they should also be planned for and managed with discipline.
Certainly, some managers outperform more often than others and beat their respective market more consistently and Neil Woodford has been a part of this exclusive group for some time, cementing himself as one of the best stockpickers in the business.
Having begun his career in 1987, Woodford very quickly found himself at the helm of what would prove to be one of the best funds of the period. Joining what was then Perpetual in 1988 as a manager, Woodfords skill and stewardship saw his High Income Fund go on to beat the market in 17 of the 25 years he was at the controls - by a margin of 8% a year on average. That is a level of success enjoyed only by a handful of managers to date.
His employers then entrusted him with the management of what is now the Invesco Perpetual Income Fund, which launched in 1995 and went on to beat the market in 12 of the 18 years he was in the driving seat. Yet another brilliant example of Woodford's skill and competency as a money manager, and the star is born. A consistent, top-quartile manager, Woodford could do no wrong.
Now, however, we ask, what changed? What happened to the manager we used to know? The answer is nothing. He is still there, doing what he can to rectify the situation. Now a victim of his own success, Woodford's recent underperformance comes as a shock to those loyalists who believed he was invincible and knew only how to win. The financial markets have a way of humbling even the most elite among investment professionals.
Much of the recent coverage of Woodford has been critical of his ability and competency as a money manager, with some now questioning whether he should even be in the business. If we focus on stockpicking alone, Woodford still proves to be a superior money manager over the longer term - it is the shock of more short-term underperformance that has sparked much of the media and investor fury.
Be prepared to act
If we expect and believe that a fund manager will always win, we are destined to be disappointed. Nobody always wins and Woodford is no exception. We must be prepared for any manager to underperform and we must plan what to do and how to act, when that day comes. If that means moving capital elsewhere, then so be it.
As investors and advisers, we must be objective and not allow ourselves to become too attached to a particular manager or brand of investing. If we deal in these funds for what they are - vehicles for capital growth that rise and fall at different points in the cycle - we can more successfully navigate among them without becoming too emotionally involved and complacent.
If this were really the case, however, this ongoing media storm would have significantly less momentum against a man who is merely trying to do his job. Right now, the focus must be devoted to informing investors of what is happening, what it means for their investment and how it might be resolved. The analysis, questions and critique can wait.
Nicola Cornish is managing director at Clever Adviser
Brooks Macdonald has bought Edinburgh-based wealth and asset manager Cornelian Asset Managers for a fee of up to £39m.