Dealing in the Woodford Equity Income Fund has been suspended for at least 28 days, effective immediately. Investors in the fund won’t be able to buy or sell units until the suspension has been lifted. As the fund can’t be traded, Hargreaves Lansdown have made the decision to remove it from their Wealth 50 list of favourite funds. They have also removed the Woodford Income Focus Fund.
Dealing in the Equity Income fund was suspended by Link Fund Solutions, the fund’s Authorised Corporate Director, to protect existing investors, following concerns about liquidity.
The fund has fallen in size over the last year, due to poor performance and investor outflows. The fund size is currently £3.7 billion, down from £6.8 billion a year ago.
A significant reduction in fund size jeopardises manager Neil Woodford’s ability to run the fund effectively. Link has taken action in order to protect investors who wish to remain in the fund, who could otherwise be negatively affected by fund redemptions.
Emma Wall, Head of Investment Analysis, Hargreaves Lansdown, commented:
“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.”
Adrian Lowcock, head of personal investing at Willis Owen, commented:
“The fund has materially changed over the past few years, in part reflecting Woodford’s view on the value opportunities available in the UK following the Brexit vote, but also as he looked to keep his favoured (unlisted) investments as money flowed out of the fund. The result has been an increased exposure to mid, smaller and unlisted companies. As outflows have continued, the problem of holding unlisted stocks in an open-ended vehicle has become more serious, leading to creative methods being applied to meet investors’ demands.
“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.”
Ryan Hughes, head of active portfolios at AJ Bell comments:
“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.
“Woodford has indicated that they will be looking to reposition the portfolio away from illiquid holdings during the suspension and therefore investors may have to be patient for the fund to reopen. Events such as this are rare but it is a reminder to all of the risks 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.”
