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Woodford Equity Income Fund Wind-up Blog

Woodford Equity Income Fund Wind-up Blog

 

You may have seen in the news yesterday (15/10/2019), Neil Woodford’s flagship fund, namely the Woodford Equity Income fund is to be wound up with effect from 17/01/2020.

Background

Neil Woodford has been a star of the investment world for years, a contrarian fund manager. When every fund manager bought into Tech stocks in the late 1990’s, Woodford didn’t. His fund was at the bottom of the pile – 4th quartile. Then the tech bubble burst and Woodford was the best UK Equity Income fund manager – his fund jumped to the top of the league.

It was announced in June 2019 that due to large requests from investors to redeem their capital and underlying liquidity issues within the fund, a decision was made to suspend the fund for future trades. The underlying aim of this action was to allow Mr Woodford some time to generate the capital required in order to meet investors’ demands for their capital back. This was to be achieved by repositioning the underlying investment holdings of the fund into more liquid assets/shares.

It was thought that the fund could be suspended until December 2019 or January 2020. However, following intervention from the fund’s custodian, Link Fund Solutions (who runs the fund on Mr Woodford’s behalf), they have now decided to wind up the fund completely.

What does this mean?

Essentially, the fund custodian (Link Fund Solutions) did not feel the action undertaken by Mr Woodford during the interim period (the fund suspension) was sufficient for investors interests and they have stepped-in, in an attempt to help investors, get their capital back quickly. Subsequently, Neil Woodford has now been removed as investment manager of the fund.

Link Fund Solutions Approach

Link Fund Solutions released a statement, which said: “After careful consideration, the decision has now been taken not to reopen the fund and instead to wind it up as soon as practicable. This is with a view to returning cash to investors at the earliest opportunity”.

 

The Regulator (the Financial Conduct Authority (FCA) View

Following the announcement to wind the fund up, the FCA has welcomed ‘the removal of uncertainty’ that Link’s decision has provided, adding, ‘We recognise that investors have been concerned about the state of their investment since the beginning of June’.

‘Winding up the fund will allow the return of money to investors through a number of distributions, which are likely to begin in January 2020. This means investors should receive some of their money back sooner than had the fund remained suspended’.

What is Mr Woodford’s opinion?

Mr Woodford categorically believes that Link Fund Solutions have made a mistake in their decision to suspend the fund, stating ‘This was Link’s decision and one I cannot accept, nor believe is in the best interest of LF Woodford Equity Income fund investors’.

 

What happens now?

Link have confirmed that during the interim period, the fund will continue with its repositioning, but with the aim of preparing the portfolio to be wound-up, after taking into account any liabilities the fund owes. The proceeds of an orderly realisation of the Fund’s assets will be returned to investors in a series of capital distributions.

The portfolio will be split into two portfolios:

Portfolio A: Which comprises the listed stocks and its winding up period will be overseen by    BlackRock Advisers (UK) Ltd; and

Portfolio B: Which comprises the unlisted assets and be overseen by PJT Partners (UK) Ltd during the winding up process

The assets under this portfolio are less liquid and will be sold over time in an orderly manner in order to attempt to minimise loss of value. It is fair to say that this portion of the portfolio will take longer to sell given the nature of the underlying investments which could ultimately delay the process of you regaining your capital.

Link have stated that they expect the first capital distribution to be made to investors by the end of January 2020, but this will depend on how quickly the value of the Fund’s assets can be realised.

Was this the right decision?

It’s a fine line, with good arguments for both camps, but, ultimately, I believe Link’s decision to wind up the fund to be a good logical outcome. My rationale behind this is as follows:

  • As the FCA have stated, it removes the ongoing uncertainty surrounding the fund i.e. when will the fund be reopened? And, could the fund be suspended again if there were mass outflows, if so, how long would that suspension last?
  • The repositioning of the underlying assets that make up the fund go against Woodford’s normal investment philosophy (a contrarian investment approach)
    • With the fund moving to larger cap (FTSE 100) stocks, it is likely to be more appropriate to invest in a fund that solely focuses on this market sector and has a good track record in this area

A major factor that will ultimately prove if this was the correct decision will be to see how the sale of assets under Portfolio B are handled. It is important that these assets are not just sold at a lower value to raise capital, as this would impact on the amount of capital investors get back. It is important that PJT Partners (UK) Ltd take their time in negotiations in order to attempt to get the true worth of the underlying assets held within the portfolio, which they have indicated they will do.

 

 

Carl Mitchell

16/10/2019

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Investment Update Prudential

Investment Update

We had a meeting in our offices yesterday afternoon with Prudential, one of the biggest multi asset fund managers in the world.  Their Investment Director Andy Brown came to discuss their unique smoothed multi asset investment proposition.

It was useful to get 1 to 1 input on the fund management of this multi asset proposition and their current views on markets and where we are in the market cycle.

In line with the consensus view, Prudential think that 2018 will be a year for growth on invested assets generally but with heightened volatility. They also think that we are in the late phase of a bull market and are carefully watching leading economic indicators for any signs that we are entering a bear market.

The Prudential are looking to reduce volatility in their underlying investments, particularly in PruFund Growth, and deliver investment returns in any part of the market cycle, through the use of alternative investments.

They are focused on long term investing and this is how we should view our investments too, over the long term.  Whether or not we have the benefit of ‘smoothing’ in a volatile market we need to remain focused on the long term.

The outlook and views above are as ever subject to unpredictable or ‘Black Swan’ events.

A key message is to remain invested and avoid any temptation to sell when we see volatility in market prices. You have to be invested to benefit from returns, despite volatility and market cycles.

If you wish to discuss this or any other aspect, of your finances, please contact me.

 

Steve Speed

01/03/2018

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Stocks and Shares ISA

Stocks and Shares ISA

 

The term ISA (Individual Savings Account) is one that has come to the forefront of adverts and articles in recent years but does everyone fully understand the saving options available, particularly the Stocks and Shares ISA Read more

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Best ISA

Best ISA

What is the best ISA?

Defining the best ISA is such a hard task as everything depends on what you’re looking to gain from your savings and how long you wish to invest for. There are many things to consider when choosing the perfect ISA to suit you. Read more

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Lifetime ISA – What It Means to Your Savings

Lifetime ISA – What It Means to Your Savings

What is a Lifetime Savings Account? Who is it for?

From April 2017 the government are introducing a new aspect to the Individual Savings Account, the Lifetime ISA. This new ISA offers individuals under the age of 40 to open an account and save with flexibility for the long term. The LISA makes it possible to save simultaneously for your first home or for your retirement. Read more

olivia 4,329 Comments

Property Fund Suspension

Following the recent vote to leave the EU there has been a wave of property funds being suspended from multiple providers. Nearly £18 billion of assets have been frozen within the funds that have temporarily seized trading. The decisions to suspend property funds have been made by each provider to protect shareholder’s interests by avoiding having to make heavily discounted sales. Read more

olivia 3,734 Comments

EU Referendum Investment Update

We voted to leave the EU by a majority and the markets are reacting with some volatility.  Sterling and the FTSE are down and global markets are also reacting.

History and experience has taught us that at times of severe volatility you need to remain invested in the markets, now is not the time to switch out of your investments as you will probably only crystallise losses. Read more