Bank notes

Counterpoints

Now he tells us. Governor Mark Carney of the Bank of England has been advising us on our investments. Be careful, he says. Before putting money in, ask yourself how easy it would be to get it out. Followers of Neil Woodford are unhappily learning this lesson. Looking for someone to blame, they might cast an eye at Mr Carney.

Five years ago Mr Woodford, who had been much lauded for more than a decade as his employer Invesco’s star stock-picker, set up on his own and invited custom. It came in a rush. His new Equity Income Investment Fund drew in £10 billion of investors’ savings. When some of the money began to flow out again, the trouble started. He had not looked for starry performance from companies whose shares were easy to buy and sell. It was more likely to be found in small companies with big ideas—the winners, perhaps, of the future.

In the nature of markets, their shares are simpler to buy than to sell. An attempted fire-sale would only make matters worse. So he now had to sell what he could, or to lock his investors in, or both. Already the usual cry has gone up: how could the regulators have let this happen? We want compensation!

In the days when Mr Woodford was launching his fund, Mr Carney was newly arrived at the Bank. Its key rate of interest—Bank rate—was at its lowest for three centuries. He has left it like that ever since. By now, the rate of return on some British government stocks is barely half today’s rate of inflation: loss of value guaranteed to investors. In Germany, this sort of investment would be even dearer, for Europe’s central bank is not far out of step with our own, and so is the Federal Reserve in Washington. It is only natural that investors in search of returns should look further and further afield.

So, as Mr Carney notes, they have poured money into the world’s “emerging markets”—although every so often these markets submerge and their backers cannot emerge from them. They put hopeful prices on the supposed wonders of new technology, without waiting for them to generate earnings. This is their response to the central bankers who, a decade ago, made money cheap in response to a crisis and have kept it that way ever since. A distorted market produces unwanted results. Mr Woodford’s followers have found this out the hard way.