Woodford Equity Income Fund Downgraded to Neutral

Morningstar analysts have downgraded their rating of the £4.3 billion Woodford Equity Income from Bronze to Neutral

Holly Black 20 May, 2019 | 3:14PM

Neil Woodford

Neil Woodford’s flagship fund has been downgraded from Bronze-rated to Neutral by Morningstar analysts.

“Persistent redemptions, underperformance and stock-specific issues” have caused analysts to cut their rating on the Woodford Equity Income fund.

Morningstar analyst Peter Brunt said the manager’s “relentless willingness to push the portfolio to its liquidity limit” had also contributed to the decision to downgrade the fund. Brunt said he considers the portfolio’s positioning as “extreme”.

A Neutral rating indicates that analysts do not have a strong conviction on a fund and don’t expect them to deliver standout returns. Neutral funds are also unlikely to seriously underperform, however.

The move comes only a year after the fund was downgraded from Silver to Bronze by Morningstar analysts.

A spate of poor performance by Woodford Equity Income has seen a flood of outflows from the fund; assets have more than halved from a peak of £10.2 billion to £4.3 billion. Last week, it was revealed that Kent County Council, which has 4% of its pension assets invested in the fund, had put its stake under review.

Woodford has made a series of unconventional moves in recent weeks to reduce the proportion of his assets invested in unquoted or less liquid stocks. Several of his stakes in unquoted companies were listed on the Guernsey stock exchange. He also took a stake in his own investment trust, Woodford Patient Capital (WPCT), in exchange for selling his holdings in unquoted stocks to the trust.

Earlier this month the manager promised he would reduce the proportion of the fund investment in illiquid and less liquid stocks to less than 10% by the end of the year and eventually to zero.

Brunt says: “Continued redemption and the delaying of several unquote names from IPO have forced the group to take extreme action to keep unquoted exposure below the 10% regulatory limit. While so far it has successfully managed to meet these demands, the portfolio now has one of the least liquid profile in the market.”

In the most recent update, Morningstar analysts rated the process and performance pillars of the fund as negative.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
LF Woodford Equity Income C Sterling Acc95.17 GBP-0.60

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites