Investors pull £50m out of Woodford as UK watchdog eyes new fund rules

Pedro Gonçalves
clock
Investors pull £50m out of Woodford as UK watchdog eyes new fund rules

Star manager Neil Woodford has been dealt a devastating blow as investors pull out £50m from the Woodford Income Focus fund in just two days.

Figures from Morningstar, first reported by CityWire, show investors getting as far away as possible from Woodford's smaller Income Focus fund, which is still open for dealing. Only the flagship Equity Income is suspended.

Investors pulled out £29m from the fund on Wednesday and a further £19m the following day. By last week, the fund had shrunk from £553m at the end of April to £424mn, with the portfolio down 11%.

I would like to apologise personally to all clients who have been impacted by the recent problems with the Woodford Equity Income fund. We all share their disappointment and frustration. Our priority right now is to support our clients and keep them informed"

In the wake of the suspension, the FCA is considering a ban on daily withdrawals from funds holding illiquid assets and forcing funds to keep to assets in jurisdictions chosen by investors, its chief executive Andrew Bailey has warned.

Writing for the FT, Bailey said the regulator will consider "lessons" learned from the Woodford meltdown as it finalises new rules based on its ongoing consultation on illiquid assets and open-ended funds.

However, he acknowledged wider changes affecting investment funds would have to be done at an EU level, under the UCITS directive.

Bailey said: "The Woodford fund points to a potential problem with the limits on illiquid assets: the purpose of these limits is to ensure that the fund remains liquid.

"Simply listing an unquoted company overseas does not in itself make the stock liquid. I am a strong supporter of internationally open markets. But investors have a right to choose the jurisdiction in which they invest and for it to be maintained.

"It is not sensible to provide for daily dealing and redemption in open-ended funds that hold a large exposure to illiquid assets, including those that while listed are not regularly traded."

A potential ban of open-ended investment funds holding illiquid assets would likely affect Merian Global Investors and Invesco Perpetual, according to the Telegraph.

Fund supermakert Hargreaves, a strong supporter of Neil Woodford's fund since launch, has now apologised to the tens of thousands of its customers affected by the suspension of the vehicle.

In his first public statement since the suspension was announced on 3 June, CEO Chris Hill said: "I would like to apologise personally to all clients who have been impacted by the recent problems with the Woodford Equity Income fund. We all share their disappointment and frustration. Our priority right now is to support our clients and keep them informed."

He added that "the shortcomings of one fund" should not undermine the benefits of the entire Wealth 50 buy list: "We are confident in the robustness of how we analyse, research and compile our favourite fund list with a focus on ensuring best value for clients - nonetheless, we are reviewing this specific situation to ensure we learn from it and address it for the benefit of our clients going forward."

Woodford said last week the fund would reopen as soon as was "practicable after these exceptional circumstances have ceased", and that the suspension would be reviewed "at least every 28 days".

On Thursday, Nicky Morgan, who chairs the Treasury committee, said investors should not be charged management fees while trading in the fund was suspended.

Subscribe to International Investment's free, twice-daily, newsletter