Neil Woodford's flagship fund suspended

The decision comes after the fund suffered a spike in withdrawals from investors.

Funds and Investment Trusts June 3, 2019 by Tom Bailey

Sales and purchases of the Woodford Equity Income fund have been suspended following a wave of new redemptions.

In a statement posted on Woodford Asset Management’s website, it was announced that the issue, cancellation, sale, redemption and transfer of shares in the fund have been suspended.

The decision comes after the fund suffered a spike in withdrawals from investors. According to the Financial Times, Kent County Council recently notified Woodford it would withdraw its £250 million holding. 

The fund’s assets under management have fallen from £10 billion around two years ago to under £4 billion at present.

According to the statement, the decision to suspend trading was taken to “protect the investors in the fund.”

As Ryan Hughes, head of active portfolios at AJ Bell, points out, unquoted companies held within the portfolio increased the strain caused by these redemptions.

In open-ended funds, when investors sell their holdings, the fund has to sell a portion of its underlying assets to return cash to the investor. However, unquoted companies often taken longer to sell.

According to Hughes: “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 similar inability to sell illiquid assets caused a number of open-ended property funds to suspend trading following the 2016 Brexit vote.

The temporary suspension, the statement notes, is intended to give Woodford time to reposition the fund’s portfolio from unquoted shares to more liquid investments.

However, Adrian Lowcock, head of personal investing at Willis Owen, warns that the suspension may see more investors eventually jump ship. He notes: “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.”

In a note to shareholders in March 2019, Woodford argued that right now was the best time to buy UK shares in three decades. Pointing out that domestic UK equities have been unfairly punished since the Brexit vote in June 2016, he said the UK market is “a valuation opportunity, the likes of which I haven’t seen for more than 30 years.”

According to Moira O'Neill, head of personal finance at interactive investor (Money Observer's parent company), the suspension will draw further attention to the risk of open-ended funds holding illiquid assets. O'Neill says: "Several months since the Financial Conduct Authority launched a consultation on illiquid assets and open-ended funds. This suspension will focus minds, and perhaps sharpen regulatory pens. Once again it opens the debate on what the AIC dubbed ‘the elephant in the room’ – that the open-ended structure is never going to be ideal for illiquid assets such as property."

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