Save, make, understand money

Experienced Investor

Woodford on trading suspension: ‘I’m extremely sorry’

Written By:

Well-known fund manager Neil Woodford has apologised to investors after taking the decision to suspend trading on his flagship Woodford Equity Income fund.

In a video produced by Woodford Investment Management, the fund manager explained that the difficult decision had been taken to suspend trading because the firm felt it was necessary to protect investors’ interests. This means no new investments can be made and no money can be withdrawn from the fund by investors.

“The situation that we confronted was that we were seeing a lot of outflow in the portfolio. As a result of that increased level of redemptions, we were seeing the stock market anticipating that we would have to be sellers of stocks to meet those redemptions, and we felt the prices that we would be able to achieve in order to meet those redemptions would be disadvantageous for our investors,” he explained.

The move has sent shock waves through the investment community.

The Woodford Equity Income fund has come under pressure after a prolonged period of disappointing performance and a run of bad news at a number of the companies held in the portfolio. Over the past three years, the fund has posted a loss of 18.1 per cent which compares to 23.3 per cent return by the average fund in the Investment Association’s UK All Companies sector.

This poor performance has led to a continual flow of money out of the strategy. The fund has shrunk from £10.7bn in the summer of 2017 to £4.3bn at the end of April.

Selling unquoted stocks

While the firm has been able to accommodate these redemptions by selling shares in more liquid FTSE 100 stocks, its allocation to unlisted stocks – which is understood to have previously amounted to 18 per cent – has created problems.

In response, Woodford has pledged to take this allocation down to zero. However, this exercise will take time because of the illiquid nature of these investments. The fund manager said the suspension will provide the team with time to complete this process.

“That process is under way and is continuing, but was made much more difficult by the outflow that we were witnessing, so the suspension of dealing in the funds gives us the time and space to execute that strategy to reduce that exposure and redeploy that capital into more liquid stocks,” he explained.

What happens next?

Woodford said he was “extremely sorry” that the firm had taken the decision to suspend trading, but was keen to stress that it was intended to protect the interests of investors.

“We will be providing regular updates on the fund, we will price the fund daily, so investors will have a clear idea of what is happening in the fund,” he explained.

“We understand our investors’ frustrations. All I can say in response to that is that this decision was motivated by your interests, our investors. When it is appropriate, we will open the fund so you can buy and sell as normal,” Woodford added.

The suspension of trading in the flagship UK equity income fund has had a knock-on effect on Woodford Patient Capital Trust (WPCT), an investment trust managed by the firm which offers investors access to early-stage growth companies – some of which are unquoted.

News of the suspension in the equity income fund immediately sparked a 13.9 per call in WPCT’s share price to 66.7p. It is currently trading at 67.7p.