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Woodford Fund Suspended to December - the Morningstar View

Morningstar Investment Management's Keith Speck discusses the implications with senior editor Holly Black

Holly Black 30 July, 2019 | 3:52PM



Holly Black: Welcome to the Morningstar series, "Ask the Expert." I'm Holly Black. With me today is Keith Speck. He is a Portfolio Specialist at Morningstar Investment Management.


Keith Speck: Hello.

Black: So, we're here today to talk about the Woodford Equity Income Fund. Investors have finally had an update. What's happened?

Speck: Yeah. I think before going into what's happened in the last day or two, maybe just to recap, Woodford Equity Income closed the doors to redemptions back at the start of June, really following a period of weak performance and elevated levels of redemption requests. Once this isn't unheard of, if we think about GAM and some of their absolute return funds last summer and property funds following the Brexit referendum, it is unusual for a fund that invests in listed securities. So, yesterday we had the news that the fund is likely to remain gated up until December of this year. And whilst that's unpalatable for investors in their fund, if we think about it, they're not going to have access to their money for six months, at least it gives a more realistic timeframe to work towards.

Black: So, what does it actually mean for anyone who is invested in the fund?

Speck: Well, it just means simply at the moment, they're not able to get their money out. The portfolio that Neil Woodford was invested in had quite a lot of unlisted or illiquid investments in it. And the aim of closing the fund in the interim period is essentially to protect current investors in the fund to be able to reposition those holdings into a more liquid portfolio whereby those redemptions could be met.

Black: So, what sort of shape can we expect the portfolio to be in when it does reopen?

Speck: Yeah. Well, Neil Woodford has come out to say that the proportion of assets invested in the FTSE 100 or the FTSE 250 will be a lot higher. So, proportionately, the level of unlisted investments will be reduced. So, there will be more liquidity there to meet what is obviously currently a queue of redemptions and any potential redemptions that may come through when the fund does actually reopen.

Black: And if the redemptions do continue, and investors aren't happy or performance doesn't pick up, is there a chance this fund could wind up permanently?

Speck: It's not beyond the realms of probability. I guess, it's impossible to predict what those future redemptions will be. But it's worth noting that the size of assets currently being run by Woodford Investment Management are large, and there are an awful lot of funds that actually do exist running far fewer assets.

Black: So, big buzzword that's come out over the past couple of months with all this is liquidity. Is that something investors need to be concerned about generally? Should they be looking through their portfolio and worrying about that?

Speck: Absolutely. And really, the time to think about potential liquidity crises is before they happen, rather than looking in the rearview mirror. So, before buying an investment, you should really look into what the liquidity profile of that investment is and also consider your requirement for liquidity within your portfolio. So, if you need access to funds in the relatively short term, then it doesn't make sense to invest in an illiquid fund.

Black: Thank you so much for your time.

Speck: Thank you, Holly.

Black: Thanks for joining us.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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