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Investors weigh up next steps after Woodford suspension

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”.

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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.

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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.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. … 15th March 2019
    Sad to say but looks like Neil is a busted flush, only propped up by Hargreaves Lansdown. Go for the exit.

    • Julian Stevens 10th June 2019 at 8:46 am

      He’s not even proposed up by HL any more (or SJP). Investors and institutions on their behalf are voting with their feet. What’s the betting that when this suspension is lifted there’ll be a renewed rush for the exit door? It’s hard to see how Woodford can ever recover from this. And was he really such a superstar when he was at INVESCO? A comparison between the performance of INVESCO Income & High Income and the FTSE Mid-250 Index whilst he was there shows a truly remarkable correlation, the most convincing evidence I’ve yet seen of the merits of passive vs. active investing.

  2. It seems that this has been triggered by the notification from Kent County Council that it wanted to redeem its entire £250Million holding in one go!

  3. £250 million from one Council, in one fund….. really? Who is policing these people and their decisions on behalf of their council taxpayers?!

    • Julian Stevens 6th June 2019 at 12:09 pm

      More to the point, who advised the Trustees to make such an investment? Was no due diligence undertaken to compare the old with the new? If it had been, any half-competent analyst would have realised, surely, that Woodford Income is a very different, more speculative and thus riskier fund than either of the two he used to manage for INVESCO. And what about advising the Trustees to hold back for a while until the new fund had established a decent track record? History is littered with examples of fund managers having jumped ship and then having failed to maintain the same level of performance they established before they did so.

      Should such questions have occurred to the Trustees, I imagine they may well be contemplating legal action against their advisers.

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