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Neil Woodford picked an auspicious week to strive a resurrection. The previous UK fund supervisor, whose eponymous funding boutique collapsed in 2019, announced plans for a brand new “funding technique platform” — dubbed “W4.0” — on Holy Monday.
Woodford was as soon as accused by regulators of getting a “defective” understanding of his duties for managing liquidity dangers. It’s for increased powers to resolve whether or not he deserves forgiveness. Irrespective, this pitch for a brand new service providing “followable funding methods designed by Neil Woodford, that you would be able to act on by means of your current account”, presents some apparent flaws.
The emphasis on letting prospects make adjustments and execute trades by means of their very own brokers appears to tell apart W4.0 from regulators’ formal definition of “copy trading”, however the primary attraction is identical. Beginner traders really feel like they’re getting steering from somebody educated, whereas nonetheless having extra company than if they simply caught their cash into an index tracker.
There may be clearly a requirement for this. EToro, the market chief in copy buying and selling, grew from about half 1,000,000 accounts in 2019 to greater than 3mn in 2024. However simply because it’s in style doesn’t make it sensible. EToro says about 35 per cent of its “in style traders” — the accounts that common customers can select to repeat — beat the S&P 500 in 2024, however doing so constantly is way more durable. EToro’s hottest dealer has solely overwhelmed the US index in two of the previous 5 years.
Woodford seeks to place himself because the mature various to reckless, gambling-like methods. However copy buying and selling can create perverse incentives to make wild bets or transact extra recurrently. Why trouble paying a month-to-month subscription payment for a portfolio that appears similar to everybody else’s, or which stays the identical for prolonged durations?
W4.0’s unique sin is the assertion, proper in the beginning of the online put up introducing the platform, that “the monetary merchandise most individuals are supplied nonetheless look lots like they did 30 years in the past: inflexible, opaque and costly”. It’s true that the majority retail investments nonetheless undergo traditional-looking buildings — even trade traded funds may very well be seen as a variation on an previous theme — however the progress of ETFs and index trackers has nonetheless given customers much more choices than they used to for affordable, clear and efficient investing.
There may be proof that traders are fairly pleased with the change. The share of retail property beneath administration in index-tracking funds surged from 11 per cent in 2015 to 25 per cent in 2024, in line with the Funding Affiliation.
Woodford complained on a current podcast that he by no means had the chance to restore his efficiency after the prolonged interval of losses that led to the collapse of his boutique. However even a profitable W4.0 wouldn’t be capable of reverse the decline of the “star supervisor” tradition he as soon as epitomised. The meeker funds are already inheriting the earth.
