Neil Woodford’s flagship Woodford Equity Income fund has suspended dealing in shares with immediate effect.
The announcement yesterday afternoon comes after the fund has been under scrutiny by industry experts in recent months due to rapid outflows and underperformance.
The announcement says it is “in the best interest of all investors in the fund” to suspend issue, cancellation, sale, redemption and transfer of shares in the fund.
The decision is intended to protect investors by allowing Woodford time to reposition the element of the fund’s portfolio invested in unquoted and illiquid stocks, in to more liquid investments.
Hargreaves Lansdown has decided to remove the fund from its Wealth 50 list, in a move it says is because the fund cannot be traded.
The Woodford Income Focus fund has also been removed from the list. The platform says the reduction in fund size “jeopardises Woodford’s ability to run the fund effectively”.
The group’s head of investment analysis Emma Wall says: “We are advocates of long-term investing and think Woodford’s multi-decade track record remains compelling – but we don’t underestimate the disappointment investors must feel with Woodford’s recent performance.”
The move comes just one month after Hargreaves’ head of research Mark Dampier said he believes Woodford still has skill to deliver “excellent long-term performance”.
He said: “This isn’t the first time in his career Woodford has underperformed. We’ve stuck with him during difficult times before, and in the past investors have been rewarded for such patience. Our analysis of Woodford’s long-term track record gives us the confidence to retain the Equity Income fund on the Wealth 50”.
Other analysts agree it is not something that would have been a quick decision.
AJ Bell head of active portfolio Ryan Hughes says that the suspended dealing will come as a shock to many, but shows the “sheer scale” of outflows.
He adds: “With an element of the fund in illiquid investments, it is clear that the fund was having to sell the more liquid holdings to fund the redemptions, which in turn can exacerbate the problem. This is not a decision that will have been taken lightly and it is done to protect the interest of remaining investors.
“Events such as this are rare but it is a reminder to all of the risk that come with investing in illiquid assets while offering daily liquidity to investors. This never appears to be a problem when money is flooding in but when sentiment turns it can come back to bite investors badly as has happened here,” Hughes says.
Meanwhile, Willis Owen head of personal investing Adrian Lowcock says: “Investors will understandably be concerned and, unfortunately, while the fund is suspended they will not be able to get their money. The suspension is likely to result in further outflow requests once the fund reopens, putting more pressure on Woodford. But it does give him time to find a solution and restructure the portfolio to be suitable in the current climate.”
“This would likely impact performance of the fund in the short and medium term,” Lowcock warns.