How investors are affected by suspension of Neil Woodford’s flagship fund
The suspension gives Mr Woodford time to reposition part of the fund’s portfolio invested in less liquid stocks.
Dealing in the Woodford Equity Income Fund has been suspended in the “best interests” of investors in the fund.
Here is a look at why this has happened and what this could mean for investors:
– What has happened?
Link Fund Solutions, the authorised corporate director of the fund, has obtained an agreement to suspend dealing in shares in the fund, with immediate effect. The suspension of dealing will remain in place for at least four weeks. As the fund cannot be traded, Hargreaves Lansdown has removed it from its Wealth 50 list of favourite funds.
– What’s the background?
The fund has fallen in size over the last year, due to poor performance and investor outflows, according to Hargreaves Lansdown. The fund size has been put at £3.7 billion, down from £6.8 billion a year ago.
The Woodford roundup for April, along with a strategy message from Neil, is now available (risk of losses): https://t.co/serjwhMyYh— Woodford (@woodfordfunds) May 3, 2019
– What is the purpose of the suspension period?
This is intended to protect those investors who are still in the fund. They could otherwise be negatively affected by fund redemptions. It would allow Mr Woodford time to reposition the element of the fund’s portfolio invested in unquoted and less liquid stocks into more liquid investments.
Ryan Hughes, head of active portfolios at AJ Bell, said: “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.”
– Where does this leave investors?
Investors may have to be patient while they wait for the fund to reopen. Emma Wall, head of investment analysis at Hargreaves Lansdown, said investors will feel frustration and disappointment.
She said: “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.”
Adrian Lowcock, head of personal investing at Willis Owen, said: “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.”
– What can investors do in the meantime?
Investors are being kept informed about the suspension and its likely duration. If they have questions they can email firstname.lastname@example.org.