Neil Woodford’s Equity Income fund remains on track to re-open in December but the embattled manager has suffered more short-term pain after the writedown of one holding and the suspension in trading of another.
In its latest 28-day update on the fund on Friday, Link Fund Solutions, the fund’s authorised corporate director, said lifting the suspension in December “remains achievable”.
Link said: “We currently remain of the view that this is a realistic timeframe, and therefore have decided that it remains in the interests of all investors for the suspension of dealings to continue.”
The Woodford Equity Income fund has been closed for 82 days but Woodford Investment Management (WIM) continues to charge a management fee despite calls from the Financial Conduct Authority and industry figures for it to stop.
AJ Bell head of active portfolios Ryan Hughes said: “While plenty can happen in the next four months, giving this update shows confidence that they can achieve this target which gives investors trapped in the fund some hope that they will be able to access their money before Christmas.”
Share price declines
Equity Income has lost 11% since the suspension, underperforming the FTSE All Share index’s 1.52%. WIM said in a statement on its website that this can be primarily attributed to the share price decline of two of the fund’s larger holdings, finance litigation firm Burford Capital and cold fusion start-up Industrial Heat.
Burford Capital’s share price plummeted following a “short attack” by a California-based research firm Muddy Waters earlier this month.
On Friday, Woodford Patient Capital Trust’s (WPCT) holdings in Industrial Heat were devalued by Link with assistance from independent valuation firm IHS Markit. Link said as a result the trust’s net asset value will decline by 3.4p a share.
WIM said: “We are not responsible for unquoted valuations across any of our funds. Link is ultimately responsible for the pricing and valuation of unquoted stocks and it is assisted by an independent valuation company, IHS Markit, in the valuation process. The change in valuation will be reflected in the fund’s closing NAV as at 23 August 2019.”
Stobart blow
Woodford was dealt a second blow on Friday on news that one of the fund’s key holdings Eddie Stobart had temporarily suspended trading on the Aim index due to the unveiling of accounting errors and delayed publication of its interim results.
RC Brown Investment Management investment director and manager of the MFM Primary Opportunities fund Oliver Brown said the statement from Eddie Stobart “doesn’t read well”.
He added: “Clearly the dividend is being cut or passed and given the debt the company already has, a significant cut to Ebitda could result in covenant breaches.
“The early warning was really in the trading update on 9 July, where the new CFO having conducted a full review of the group’s prior year financial statements resulted in prior year adjustments, albeit relatively modest. Clearly he has unearthed some further nasties.
“To add to problems, Woodford as the largest shareholder is also weighing on the price and we do believe he can’t be a long-term holder.”
Brown recently told Portfolio Adviser that RC Brown was among a consortium of investors that had picked up stocks direct from Woodford’s equity income portfolio since the suspension. He said at the time Eddie Stobart was a possible next target because of its cheap valuation.
Top 10 holdings pulled from website
Elsewhere, WIM said in consultation with Link, it has removed the list of Equity Income top 10 holdings from the company website.
WIM said: “We remain committed to operating the fund in a way that best protects the interests of investors, both for those who wish to remain invested and for others who will seek to withdraw from the fund when the fund reopens. In light of this, and after consultation with Link, we have decided to withhold disclosing the top 10 holdings while the fund is suspended.”
WIM said to date, more than 80% of the proceeds from share sales since suspension have been reinvested in FTSE 100 companies.
Since the suspension, Woodford’s other fund, Income Focus, has halved in size to £250m.
