Woodford Fund Suspension to Continue

Manager confirms equity income fund will remain gated while he continues to sell illiquid holdings, but promises full transparency when it re-opens

Holly Black 2 July, 2019 | 9:51AM
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Woodford Investment Management has confirmed that the beleaguered Woodford Equity Income fund will remain suspended for at least another 28 days.

In the second video published since the fund gated on June 3, Neil Woodford told investors he understood they were frustrated.

When a fund suspends trading, the decision is reviewed every 28 days. Link Fund Solutions, the authorised corporate director of the fund, has said the suspension will continue to ensure investors’ interests are protected.

In a letter to investors, Karl Midl, director at Link, said it remained in their interests for the fund to remain suspended and that this would be monitored on a daily basis. “We understand the suspension of dealings may be causing concern to you as an investor in the fund. We can assure you that we are striving to do all we can to bring further clarity to the situation as soon as possible,” he said.

Midl said he expected to be able to provide further information to investors on the next steps before the next 28-day review, which will be due July 29.

Profoundly Undervalued

Woodford promised investors the portfolio would contain stocks with more liquidity, and “more FTSE 100 and FTSE 250 than there have been for the last two years” when the fund does re-open. Asked whether he would have to invest in companies he didn’t particularly like, Woodford said that was not the case and there are a number of companies that look profoundly undervalued on the stock market.

“The portfolio will be constructed in a way that is completely consistent with my investment rationale and investment message, and the focus on undervalued asset will remain at the front and centre of how we construct the portfolio,” he said.

The manager also refuted concerns that he would have to accept big discounts as a forced seller of assets. “My view is that we won’t have to; these assets are fundamentally attractive,” he said.

Woodford Equity Income has underperformed its peers for a number of years; it is the worst performing Morningstar rated fund in the first half of 2019. Since its suspension, the fund is down 4% while the FTSE All Share has climbed more than 3%. Woodford said that “value would out” in the end but he is not sure what the catalyst will be to change the perception of undervalued stocks. “Share prices will correlate with reality sooner or later. I hope it is sooner; I can see a number of things on the horizon that could be the catalyst.”

He said the takeover bid for BCA Marketplace, the company behind We Buy Any Car, was one example of how value can be realised. Woodford, who holds a 7% stake in the business, was one of the investors who last week backed a £1.9 billion bid for the firm. The manager took the opportunity to sell his stake, raising £126 million. He said: “The bid for BCA is exactly the sort of thing that we hope and expect to happen [to our holdings] going forward.”

Full Transparency

Woodford also reassured investors that once the suspension was lifted, the firm would continue to provide full transparency of the funds’ portfolios, despite admitting it had become “damaging” during the sustained period of underperformance, something the team had underestimated. He added: “The core of our culture is to be transparent and provide information to our investors.”

The manager concluded: “We completely understand the frustration. This decision was taken to protect the interests of our investors, protect the value of the assets in the portfolio and enable us to execute a strategy that will result in a portfolio, when we open, which will enable those investors who want to leave the fund to leave. But what we must do in that time is execute the strategy in a way that doesn’t disadvantage our unitholders, and that’s what we’re working on night and day.”

Ryan Hughes, head of active portfolios at AJ Bell, said it came as little surprise that the fund was not to re-open after the initial 28-day suspension period. “There are also no hints that the suspension is likely to end any time soon,” said Hughes. “While it would appear that progress is being made in adjusting the portfolio and moving away from illiquid names, there is clearly further to go.”


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Holly Black  is Senior Editor, Morningstar.co.uk


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