05 June 2019
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In a statement to investors, fund manager Neil Woodford apologised for the suspension of the Woodford Equity Income fund to redemptions, saying the move was made in the interest of investors and would provide him with the "time and space" to execute his strategy.
In a video on his website, the star investor told clients: "I'm extremely sorry we have had to take this decision. We understand our investors' frustration, and all I can say in response is that this decision was motivated by our investors' interest. When it's appropriate we will open the fund again."
He said the move would allow him the time to sell out of unquoted stocks, a strategy he previously communicated to investors, and reinvest the proceed into FTSE 250 and primarily FTSE 100 companies that still correspond to his investment strategy.
I'm extremely sorry we have had to take this decision. We understand our investors' frustration, and all I can say in response is that this decision was motivated by our investors' interest. When it's appropriate we will open the fund again"
Commenting on the lead-up to the move, the manager said: "We confronted a lot of outflows in the portfolio, and as a result to that increased level of redemptions we were seeing the stockmarket in a way anticipating the fact that we would have to be sellers of stocks to meet those redemptions, and we felt the prices we would be able to achieve would be disadvantageous for our investors."
He also stressed that the Focus fund continues to trade as normal and is a different portfolio to the equity income fund.
"It has no exposure to unquoted securities and consequently is not exposed to the same issues as the Woodford Equity Income fund, and it is positioned for the economic and market environment that I believe we are likely to see over the medium and long term."
What happened?
Early this week, Woodford Investment Management agreed in conjunction with its authorised corporate director (ACD) Link Fund Solutions (LFS) to suspend trading on the Equity Income fund amid an "increased level of redemptions".
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.
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."
Performance
Neil Woodford has suffered periods of underperformance in the past but only to leap to the top of the performance tables when markets turn. However, this time investors appear to have grown impatient with the poor performance.
Over the past three years, one year and six months, the fund is bottom quartile in the IA UK All Companies sector, according to FE.
Over three years to 31 May the fund has posted a loss of 17%. This compares to a positive return of 23.6% from the IA UK All Companies peer group and an even higher 28.4% gain from the FTSE All-Share.
Fund changes
Woodford has already taken steps to reposition the portfolio amid criticism surrounding the performance. In March, plans were announced to switch exposure to unquoted stocks in the Equity Income fund in favour of buying shares in the Woodford Patient Capital Trust, also run by Woodford.
The firm said it has sold some of the unquoted stocks to Patient Capital.
In a statement, Woodford IM said the move has been made ahead of any potential regulatory changes following the Financial Conduct Authority's discussion paper Patient Capital and Authorised Funds published in December.
In early May, Woodford confirmed illiquid holdings in the Equity Income fund will be cut to under 10% of the portfolio by the end of the year with a view to reducing this to zero over the longer term in a monthly fund update.
