Woodford IM suspends dealing on Equity Income fund

A statement posted on the Woodford IM website said the fund would be suspended from issuing, cancelling, selling, redeeming or transfering shares within the fund with immediate effect for at least 28 days.

The move is "in the best interests of all investors in the fund" and will protect the investors in the fund by allowing manager Neil Woodford (pictured), "as previously communicated to investors, time to reposition the element of the fund's portfolio invested in unquoted and less liquid stocks, in to more liquid investments".

The rapidly shrinking fund, which has fallen by around two-thirds from its 2017 AUM peak of £10.2bn, has drawn the attention of investment heavyweights and regulators alike"

This follows reports last week the Woodford Equity Income had seen its total assets fall by £560m to under £3.8bn in less than four weeks as investors exited Neil Woodford's flagship fund amid a sustained period of poor performance.

The rapidly shrinking fund, which has fallen by around two-thirds from its 2017 AUM peak of £10.2bn, has drawn the attention of investment heavyweights and regulators alike, according to the FT.

However, it was a request from Kent County Council to withdraw £250m that led to the suspension, BBC News reported.

The outflows were not helped by Morningstar downgrading the fund in its analysts ratings on 20 May due to its "extreme" portfolio positioning from Bronze to Neutral.

Woodford IM's statement concluded: "When LFS elects to resume dealing in the shares of the fund, we will write to all investors informing them of this fact.

"We will keep all investors appropriately informed about the suspension, including its likely duration."

After the 28-day period LFS will report to the regulator and determine whether the trading suspension should be lifted or renewed.

The Financial Conduct Authority (FCA) was quoted by BBC News: "The FCA is aware of this situation and in contact with the firms involved to ensure that actions undertaken are in the best interests of all the fund's investors."

Following Woodford IM's announcement (on 3 June), platform giant Hargreaves Lansdown said it had removed the Equity Income fund, and the group's Income Focus fund, from the Wealth 50, its list of preferred funds.

Emma Wall, head of investment analysis at Hargreaves Lansdown, explained: "The suspension follows a period of underperformance and outflows for the Woodford Equity Income fund. 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 suspension is understandably frustrating, but it's important to remember that the value of your investment will be dependent on the share prices of the portfolio's underlying holdings, which are not directly impacted by the suspension.

"Because the fund has been suspended we've removed it from our Wealth 50 list of favourite funds. We have also removed the Woodford Income Focus fund, as we would prefer to see a resolution to the dealing suspension before we conduct a review."

Reaction
Ryan Hughes, head of active portfolios at AJ Bell commented: "The news that the Woodford Equity Income fund has suspended dealing will come as a shock to many people but it shows the sheer scale of redemptions the fund has been suffering in recent months with the fund falling to under £4bn from a high of over £10bn two years ago.

"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 interests of remaining investors.

A version of this article was first published by Investment Week, a sister title to International Investment.

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