The news this week that Neil Woodford will be leaving Invesco in April 2014 has rocked the fund world. While there’s no need for a panic reaction, it does give rise to a number of questions. And at Edinburgh Investment Trust, there are still some unknowns.
The board of directors at Edinburgh Investment Trust (EDIN) don’t have to announce an immediate replacement in the way that asset management firms do when a star manager resigns. In the latter scenario, there can be some quick internal reshuffling to ensure the best fit for that fund and the response time is rapid.
In the investment trust sector, the board is free to look beyond the auspices of the Invesco UK Equity team. While their contract for the fund’s management is with Invesco, that can be terminated with three months’ notice, so it could be a while before we have clarity on the fund’s future management.
That’s all well and good; shareholders have the benefit of an independent board who will choose their next fund manager, rather than an internal committee. But as long as it’s not known who the replacement will be, there is uncertainty surrounding the fund’s future shape and uncertainty breeds fear.
We’ve seen that clearly in the last two days since the announcement from Invesco. Having been trading at a fairly stable premium to net asset value since the summer, in the region of 5%, the fund has rapidly moved to a discount in just the last two days and more than 2 million shares have changed hands.
This isn’t a board with a history of sitting on the sidelines. Granted, five of the six directors have only been in situ since after Woodford took over the fund’s management. Nonetheless, their legacy is one of action and of not being afraid to make bold moves. Prior to Invesco’s appointment, the fund had less of an income remit and was managed by several managers at Fidelity. Before Fidelity, it was Edinburgh Fund Managers—moving this mandate away from EFM to Fidelity helped seal the fate of EFM and it was subsumed into Aberdeen through acquisition.
For now, shareholders in EDIN have no reason to panic, in our view. Woodford remains at the fund until April 2014, or until the board say otherwise. Arguably, with the fund trading at a discount once again, for a long-term investment it could be an interesting time to reconsider the fund. We need clarity on the fund’s future management, but that discount has the potential to revert back quickly if the incoming manager is a known entity with a strong track record—from Invesco or elsewhere. When the board announced that the mandate was transferring to Woodford from Fidelity, the fund moved from a mid-teens discount to a premium in just months. It’s one to watch for sure.
