A series of announcements from Invesco, Schroders and Eve Sleep could provide cold comfort for trapped investors in Neil Woodford’s former flagship fund whose existing losses look set to be battered around further by the coronavirus.
While about 80% of the fund has been liquidated with cash returned to investors, the remaining portfolios has fallen 22.86% since the coronavirus sell-off kicked off on 20 February. Around £570.5m worth of assets, most of them illiquid holdings, remained to be sold as at 15 April 2020, according to Morningstar.
Link Fund Solutions has not publicly stated what effect coronavirus volatility has had on portfolio valuations or the ability for Blackrock and PJT, which have been responsible for winding up the portfolio, to sell remaining assets in current market conditions.
Portfolio Adviser has reached out to Link on whether it had adjusted its timeline to return money to Woodford Equity Income investors following the coronavirus and is awaiting a response.
Mark Barnett unquoted writedowns points to hit for Woodford fund
With little information from Link Fund Solutions on how Covid-19 is likely to affect the portfolio, recent announcements from Invesco and Schroders could provide clues about what investors could expect.
7IM senior investment manager Peter Sleep says there is a “decent read across” from the 60% writedown of unlisted assets in the Invesco Income and High Income funds, which contain many legacy unquoted Woodford holdings. The downgrade in Barnett’s unquoteds saw 5% immediately knocked off the unit price of Invesco Income and High Income, which were holding between 8% and 9% in illiquid names at the time.
“Presumably there has been a drop in the expected realisations from the rump of Woodford’s fund because of this and from the fall off in asset prices generally and the reduced activity in the M&A market,” says Sleep.
Additionally, Schroders, which took over Woodford’s Patient Capital trust, revealed three mystery holdings had been written down by Link toward the end of March, knocking 3.97% off the NAV.
At the end of January the £476.8m trust’s top-10 holdings were still dominated by unquoteds with Atom Bank, Oxford Nanopore and Benevolent AI making up 30% of the trust’s net assets, according to Trustnet. Rutherford Health, which listed on the Nex exchange for smaller companies last February, was 15.6% of the portfolio.
Covid-19 could tack an extra year on to wind down
Sleep reckons the coronavirus volatility will tack on an extra year to the Woodford Equity Income wind-up which he was already expecting to take “a couple of years”.
Blackrock, tasked with ditching the fund’s liquid names, had already sold 90% of its holdings by the first capital distribution on 28 January 2020. PJT Partners, which is overseeing the sale of the illiquid assets, had made some progress when Link returned a second round of money to investors on 25 March 2020 at which point £2.3bn had been paid back to investors.
AJ Bell head of active portfolios Ryan Hughes says it is difficult to calculate how bad the unquoted losses might be but with global equities down circa 20% “it’s not unreasonable to consider these assets could be marked down by the same level”.
That is on top of already heavy losses. The final valuation of Neil Woodford’s flagship fund revealed that investors who put their money in during its peak and stuck with the fund all the way until the suspension would have lost nearly half of their initial investment before accounting for losses from the sale of its illiquid assets.
Mixed results for Link selling down Woodford listed stakes
When it comes to listed holdings, regulatory filings show Link’s only activity during March was in respiratory drug discovery business Synairgen and ailing mattress retailer Eve Sleep.
The biotech business represents some rare good news for the portfolio amid the coronavirus outbreak with stocks up tenfold from 2019 as it began initial trials on an inhalant to treat patients with Covid-19. Link initially reduced its stake in the Southampton business from 19.5% to 17.7% on 30 March. Link cut its stake again on 15 April to 14.3% when its shares were trading around 70p.
However its shares are still around half what they were when the company listed for 155p in October 2004.
Meanwhile Link only managed to sell the remainder of Woodford’s 11.6% stake in Eve Sleep for just over a penny a pop. This was down 99% from when the company floated on the London Stock Exchange in May 2017 and shares were worth 101p.
“That may just be enough to cover the fund’s legal fees for a week with change for a trip to Joe and the Juice,” says Sleep.
Woodford investors should brace for further markdowns
Hughes says the “complete change in the global economy” due to the coronavirus could have a “material” impact on the illiquid assets still in the fund.
“Therefore, investors should brace themselves for the value of these to be marked down further as and when the valuer has new information to update these prices.”
“There are always buyers, but the price could be ugly for Woodford investors,” agrees Fundexpert managing director Brian Dennehy who notes it has been hard enough for larger corporates to stay afloat during the coronavirus crisis.
“The Fed acted fast to see off an unfolding and extreme liquidity crisis in March. But we remain in a deflationary environment where liquidity is at a premium,” he says.
“Conversely, anything illiquid has just taken an even bigger hit than was already evident at the turn of this year.”
Dennehy says it’s possible that some of Woodford Equity Income’s remaining holdings like Benevolent AI, which is also looking for a Covid-19 cure, might have added value in the current environment. “But they must be assumed to be the exception,” he adds.
Coronavirus could extend Woodford wind-up for a couple of years
Because Link and PJT do not have to price the unquoted assets daily nor offer daily liquidity they “can sit back and bide their time to some extent”, Sleep says.
But Dennehy says Link has a responsibility to investors to continue winding down the portfolio.
“Link cannot take their foot off the pedal. Prices might be lower but that does not reduce their obligation to find buyers,” Dennehy says.
“There is no certainty, but it is distinctly likely there will be another lurch down in markets. Link risk digging a bigger hole if they are perceived to be trying to market time.”
