The Neil Woodford Debacle

Neil Woodford, once one of the UK’s most celebrated fund managers, faced a dramatic collapse in performance. Investors fled his funds in droves, and those who stayed were left in a difficult position. The big question: What should they do now?

The real answer is simple: don’t put yourself in this situation again. The best way to avoid the stress of picking the wrong active manager is to opt out of active management entirely and invest passively.

The Risks of Active Management

For years, investment ‘stars’ like Woodford have attracted billions in private savings. But when their performance falters, investors are left scrambling to decide whether to stay or go. This is not an isolated issue—it’s a fundamental problem with active management itself.

The Permanent ‘Reselection’ Dilemma

The problem isn’t just choosing an active fund manager once; it’s the ongoing need to reassess. Performance fluctuates, and when results deteriorate, investors must make another tough choice:

• Stick with the manager and risk further losses.
• Sell out and risk missing a rebound.

Even professional advisers struggle with this decision, often falling into behavioural traps like loss aversion and overconfidence. The reality is, no one can consistently pick the right managers at the right time.

The Cost of Playing the Active Game

The Financial Conduct Authority (FCA) has acknowledged that most active funds fail to justify their high costs. Small deviations from market benchmarks rarely deliver enough extra returns to cover fees.

But even if a fund does take bigger, bolder bets to justify active management, investors are then exposed to the star-manager problem—placing too much trust in a single person’s decision-making, as seen with Woodford.