It’s been quite shocking to read about how trading on the Woodford Equity Income Fund has been suspended, meaning that many people are unable to sell and withdraw their money.
Neil Woodford took this drastic action as millions of pounds began pouring out of his funds as his previously loyal investors tried to leave what appeared to be a sinking ship.
Following the Herd
Back in 2014, I talked about how I was caught up by all the wave of publicity and invested in Woodford’s new fund.
He was like a rock star in the UK investing world, one of the few to become a household name.
Not smiling so much these days
A year later, I wrote that I was still happy with my investment as I saw some decent gains.
Fortunately for me, and not due to any kind of special investing foresight or premonition, I sold my entire holding of the fund early 2018 (for a profit) as I was switching the bulk of my actively managed funds into ETFs as part of a portfolio re-balancing exercise.
I pity the folk who have remained invested and who now cannot access their funds, so yes, I dodged a bullet there.
But all is not completely rosy with my own investments as I’m in a situation where I too have some funds which I cannot get access to right now (and I’m not talking pensions).
Properly Moosed
Back in 2016, I thought I’d go into property crowdfunding. It was something new, investments linked to something tangible, it looked like a good model, though I acknowledged then that there were risks.
So, I invested in Property Moose and all seemed great. I was receiving small regular ‘rental’ amounts for the properties I’d invested in, all looked tickety-boo.
In Feb 2018, the secondary market was suspended. Something was up.
In a nutshell, Property Moose’s business model wasn’t working. The model whereby investors purchased shares in each property and were paid monthly dividends was unsustainable and ultimately discontinued.
The directors decided that the best possible long-term solution was to move all properties into a single PLC portfolio. This solution was voted on by investors and received a 99.48% majority.
All properties have been revalued and sold off to UK Diversified Property plc.
All investors who opted to stay invested will receive allocations of shares within the new company. The share price will be valued against the valuations, costs, and revenues generated by the portfolio of properties.
This company intends to be listed on the London Stock Exchange and will probably be like a REIT (real estate investment trust).
And this is where I’m at now, I can see that I haven’t lost my money (so far), I just can’t cash out and neither am I receiving any of the rental income from the properties.
I knew this was going to be a risk, which is why the money I’d invested came purely from my matched betting profits.
Yes, I was effectively gambling with proceeds from gambling in a way, but it’s still annoying that I can’t just walk away from this investment with my cash.
It’s not a huge amount, just under £2k, which if I lose won’t be massively detrimental to my wealth/portfolio.
Am just massively annoyed at myself if anything.
What’s happened to Property Moose might probably be an exception, other similar types of investment companies have been successful but I won’t be investing in anything like this again.
Live and learn.
I hope this works out ok for you Weenie.
But to all readers, honestly: P2P and other crowd funding models are a disaster waiting to happen. Avoid at all costs.
If you think you can lend money better than the banks, well good luck folks. Reality will hit sooner or later.
At the risk of being made to look a fool in the future and just to play devils advocate I think that’s a massive generalisation about p2p
It’s now been around for over ten years, is fca regulated (whatever that means) and some platforms have gone through and survived an economic downturn unscathed.
Not all p2p is created equal (much like in fact not all funds and stock investments are created equal) i believe managed well and understood it can be a perfectly valid relatively small part of your investment portfolio
The danger is a) people who think its a bank account and
B) people who get greedy and put too much in
Weenie you are neither of these things
But you could say that about any investment other than maybe a diversified world tracker
I have about 15‰ of my non pension non property saving and investments in p2p (about 20k)
This is spread across 5 platforms with my biggest single investment in any one platform being about 6k. Most are in hands off diversified ‘easy access’ (not that I kid myself) paying between 5 and 6.5%. I have one high risk platform paying 12% to 14% but that one has been built up very slowly to the point I now have less than my interest earned in any one borrower. All are held in isas
The benefit to me is I can keep a reasonable amount of capital in an ‘accessible’ place under normal market conditions with less volatility than shares
If I lost the entire 20k I’d be pig sick but I wouldn’t lose my house, I wouldn’t jeapordise my retirement.
I effectively equate the risk of each platform the same as buying a single share
I’m not putting anything more into p2p now and am just building up my stocks and shares which are currently about 80k
There’s one blogger who has about 400k in various sites. Now that’s nuts
Hi Fatbritabroad, if you look at this logically there’s only two possibilities:
1) you can lend money more skillfully than the banks = do P2P
-or-
2) you can’t lend money more skillfully than the banks = buy some bank shares.
The next proper recession will reveal all. By proper I mean when unemployment is >10% as in the early 90’s. Bank shares will do badly. But P2P worse.
Hi FBA
Agree, not all P2P is created equal and some will have more robust models, more likely to withstand a recession or downturn in economy.
I did at one point think of putting emergency cash in P2P but the liquidity aspect of it didn’t sit well, even when with the likes of Ratesetter, you can loan out a month at a tie.
Good luck with your investments.
Hi ChrisB
Thanks, I can’t say I’m absolutely confident it will all work out but if I can get my money back in the end, then I’ll be happy.
I’m not sure I agree entirely that P2P and other crowdfunding models are a disaster waiting to happen but certainly, some will fall by the wayside in the event of the next real recession, along with other types of investments.
P2P sounds awesome and it can give good returns but you have to be careful. Its far more illiquid than it appears. I had several £k in a Funding circle ISA and decided to switch it to a Stock ISA. It took over 6 weeks to sell all my loan parts, which wasn’t a massive issue for me but I recently saw that people were keeping emergency money in these platforms. As long as you understand the risks and the fact that it may take weeks to withdraw its fine. I suppose its like any other investment. Make sure you do your research before investing.
Totally agree no one should be using it for their emergency fund!
As an example I have some house work and I need to change my car end of the year. Total cost probably 50k. I have 35k of it in cash currently and am planning to potentially use my p2p money to fund some of it. But I could also use my equities or take a loan or pull some out my house. (I may well borrow as its so cheap). The point is its not money I need to use. Otherwise itd be in cash. But I don’t want it in equities as they’re volatile
Hi Grizgalonfire
Good to hear that you were able to transfer your Funding Circle funds, although it did take 6 weeks. I got into P2P in 2014 (including Funding Circle and Ratesetter) and have slowly been withdrawing my cash as and when loans were paid off. I’ve only got about £200 in there, from a few thousand before. The reason I was withdrawing was mainly because I was simplifying my portfolio but also because I started to see the illiquidity was more of a risk than I was comfortable with. Shame I didn’t have that thought when I was investing in Property Moose but I’ve learnt my lesson!
I thought I did my research but how much research is enough? Perhaps the question should have been aimed also at those experts who invested vast amounts into the Woodford fund!
The whole Woodford thing has been extraordinary to watch. I don’t hold any of his funds but I have family that do. I don’t know how much but I think they can take the hit. I hope than when people can finally get out it’s without too big a hit.
I’m increasingly getting interested in crowd funding models, my worry is mostly that there is too much money chasing too few investment quality opportunities…but that isn’t based on any research or knowledge. The attraction for me is that it may be able to diversify me in a new direction. Whatever I do though I suspect it will only be a single digit percentage of my portfolio.
Hope that you can get at your money soon!
Hi Caveman
Crowd funding interests me too but you’re right, such risky investments should only represent a tiny percentage of your overall portfolio.
The investments in Property Moose were fixed for a specific period, I just really want to be in a position where I’m receiving rental income again.
The Woodford news has been pretty alarming. Although most people in the FI community are seeing it as a sign that they’re on the right track by sticking with index trackers (and they’re probably right on that front) I still worry about it being the start of a wider meltdown. Hopefully that’s just my paranoia/ignorance and this is specific to Woodford. Not that it affects me yet as I’m yet to actually start investing! Would probably be an opportunity for me to sweep by some cheap stock.
Hi FF
Once the suspension on trading is lifted on the fund, there is likely to be a bit of a meltdown as some of the fund’s underlying investments will need to be sold for cash to pay back to investors. How that will affect the rest of the market is anyone’s guess but yes, it could be a good time to buy, if you have the nerve to do so!
The biggest scandal here is that Woodford is still charging for his “management expertise” while you’re now stuck in his underperforming dog fund. I can’t understand this – it’s your money, you should be allowed to take it out if you want to. Thank Goodness for passive tracking funds. Seriously, Neil Woodford and his ilk are nothing more than gamblers with somebody else’s money. He got lucky for a while and now he’s being found out. The whole fund management industry is a sham, and picking individual fund managers who might perform is like backing a horse in the National. You, and they, have absolutely no idea how they’ll perform going forward.
Well, the message there is to read the small print before investing. How can you be given your money back if it’s stuck in illiquid investments? How can you pretend not to know it could be stuck in such investments when it was clearly stated in the prospectus that you were required to read?
There are issues at stake here, but you need to take responsibility for your own actions.
Woodward seems to have been the victim of hubris and bad luck here, but it was good luck that made him popular in the first place. This is the exact lesson about variance and risk that all investors need to learn, being taught right now.
The most correct response right now of course, rather than trying to sell low, is to assess the fund to try and see if it’s a buying opportunity. After all, he’s one fund manager that will be really wary about letting this problem affect him in the future.
And remember that out performance is all a zero sum game. If one investment is diving, someone else is rising…
Hi madflier
I wasn’t expecting to be able to withdraw my cash immediately from Property Moose as it’s invested in properties for a specific period of time (12-24 months). What I do expect is to be paid the rental income from the investment and this is not what is happening.
It is my own fault of course for investing in something like this but as I’ve said, I’m unlikely to be investing in similar in the future.
That said, I’m probably more relieved that my money is stuck with Property Moose rather than Woodford’s fund right now!
Hi Jim
Agree, I think I read that Woodford has raked in £50m in fees over the 3 years, so absolutely, he should be waiving that fee while investors/punters are unable to withdraw their cash. Perhaps even paying some of that back, for people who make big losses!
I think his ego and arrogance got the better of him – he was lucky with his achievement and perhaps believed that it was his own skill, not luck.
Investment lessons don’t come cheap. I’ve paid for many over the years, and still have a few to come no doubt! I’m currently somewhat overexposed to Sainsbury shares, so am not sitting particularly comfortably at the minute.
The key with you is that you pretty much knew what you were doing with Property Moose, went in with your eyes open, didn’t have all your eggs in one basket, and in this one case it hasn’t worked out. We can’t get investing right all of the time, and in a masochistic way it’s probably not a bad thing to suffer the odd set back once in a while. I still have my Airship Industries share certificate (worthless) proudly on display as a reminder to myself of a great story that turned out to be fruitless. So, take your investor medicine with a large spoon of sugar (preferably bought from Sainsbury’s please!), and keep going.
As for Woodford, i actually have a bit of sympathy for him. 30 years of fantastic performance, then a victim of his own success as people threw £10 billion at him and expected him to conjure up miracle returns in the UK market during Brexit. i do question him continuing to charge punters currently though (surely he will come to his senses there!), and why he permitted the fund to become so big so quickly (ok, yes – fees and ego) and invested in unquoted securities when his background is more blue chip stock.
I’m actually a big Terry Smith fan, so there are a few comparisons here that i’m currently thinking about. Hopefully Tel is a bit more savvy though. if not, that’ll be lesson #287 for me!
Enjoy the weekend.
Hi KC
Thanks for the great input as usual. And in a way yes, I needed to experience an investment set back (to learn from) and much better for it to have happened now, rather than later, when I’m relying on my investments to live on!
Woodford’s unquoted securities doesn’t make sense, although if he’d kept to his blue chip picks, he would only be as good as/as bad as other blue chip picking fund managers and perhaps he thought these would give him the edge.
I only have one active fund left in my portfolio and it is a small amount in Fundsmith – let’s hope you and I don’t end up with another lesson to learn, haha!
Thanks and hope you’re enjoying the weekend.
Hey weenie,
Thanks for sharing your investing mistakes, these types of posts are from my point of view the most educational ones to me, especially in regards to Property Moose.
As you probably know I am invested with Property Partner and after reading your post it appears to be that they have a similar business model, so I guess a possible thing could happen to me at some point. Theoretically, all the cumulated rent that hasn’t been affected by any “operational costs” should be paid to you, at some point?
I am also having a similar experience with another Spanish platform, Housers, that also works in a similar way as PP and PM. In that case, it was the SPV which faced bureaucracy issues and no rent was given to shareholders after these issues were sorted (by regulatory rules no money could be moved until the paperwork is done).
Hopefully, your PM story has a happy ending. Keep us up to date, please
Hey Tony
I’m glad you enjoyed this post. I can’t say that what happened to Property Moose will happen to Property Partner – although similar business models, there will undoubtedly be other factors which could mean that PP will remain a success, where PM didn’t. It’s not guaranteed that the rent which I haven’t received will be paid, we’ll see what happens.
Once I know what’s going on with these investments, I shall of course update.
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‘ I sold my entire holding of the fund early 2018 (for a profit) as I was switching the bulk of my actively managed funds into ETFs as part of a portfolio re-balancing exercise’
She’s the messiah ‘Life of Brian’ Monty Python
but seriously: I got out of P2P last year, I dangled my toe into ratesetter and funding circle * and got out after a year taking join up bonuses with me. Neither were a complete loss and I came out with a couple of percent interest (plus £150 in join up bonuses. The fact they can, and need to offer such large join up bonuses worries me.
Anyway good luck with the P2P
* other P2P companies are available
Hi Gary
Hah, not the Messiah, just damn lucky!
Yeah, I hope to be completely out of P2P at some point – just hasn’t really worked out for me, although Funding Circle has (even with the defaults) given me between 8-9%.
I think we’ve all made mistakes investing over the years Weenie – I’m just very lucky I made most of mine when I didn’t have much to invest.
I do still have a tiny bit of P2P I’m running down, but I’m not too worried about it as there have been no losses yet, so I can absorb some if need be.
Hi Ms ZiYou
Sadly, this is unlikely to be my last investing mistake but I don’t mind making small ones that I can learn from.