Link Fund Services confirmed on Monday afternoon that keeping the fund suspended until December “complete a measured and orderly re-positioning of the Fund’s portfolio of assets, ensuring that there is adequate liquidity for the re-opening of the Fund, while preserving or realising the value of the assets”.
The authorised corporate director (ACD) will continue to provide updates on the fund every four weeks.
Neil Woodford simultaneously put out a statement. “I understand the frustration, inconvenience and anxiety the continued suspension of the fund will be causing you and I am extremely sorry for putting you in this situation,” he said. “I’m afraid we cannot share details of exactly what has changed with you just yet.”
Trapped investors to pay £13m in fees
However, Willis Owen head of personal investing Adrian Lowcock said Woodford is due to reap £13m from the management of the fund over the six months that it is forecast to be suspended, while investors have no say or right of access to their investments.
Fees will cover infrastructure and resource costs, Woodford said on Monday when it confirmed investors would continue to be charged fees.
Lowcock said: “Whilst there is a balance between ensuring the fund is restructured so investors can get their money back and to ensure Woodford Investment Management continues as a business whilst this is taking place, this is a lot of money.
“The fact that the company hasn’t waived some if not all of their fees is disrespectful of loyal investors who stuck with him to this point.”
Transparency is key
Given the extended suspension of the fund, Woodford was urged to provide more detail on his progress increasing liquidity in the portfolio.
In June, Link provided exact information to the Treasury select committee about how long it would take to liquidate the fund, but in its latest update for investors, the authorised corporate director (ACD) only provided broad statements on the progress in improving liquidity in the fund.
Liquidity in Woodford Equity Income
|30 June 2018|
Woodford Equity Income Fund*
|30 April 2019 Woodford Equity Income Fund*|
|Bucket 1 (1-7 days)||21%||8%|
|Bucket 2 (8-30 days)||24%||29%|
|Bucket 3 (31-180 days)||30%||32%|
|Bucket 4 (181-365+days)||25%||33%|
Source: Letter from FCA to Treasury select committee
Lowcock said he would have liked exact details about the liquidity of the fund as it stands today.
Woodford has previously said the transparency on the fund has been damaging, with many stocks rallying after he sells out either due to a short squeeze or market overhang.
Nutmeg CIO Shaun Port said the fact investors in funds such as Woodford’s are often not told exactly what they are really invested in or whether those holdings are liquid is one of the problems with fund management today.
Port said: “Whether or not advisers, wealth managers and platforms were paying enough attention to the liquidity of the fund will remain to be seen, but – as most mutual funds only report their top 10 holdings on a monthly basis – it does call into question whether there is a need for greater transparency across the board.”
Advised clients losing their patience
Martin Bamford, managing director at Informed Choice, said this latest extension is likely to have a major impact on those advisers who recommended the funds and failed to warn clients about the liquidity risks, either at outset or as the portfolio morphed over time. “The suggested timescale in this latest update hints at poor progress being made with the disposals, raising some serious questions about the original suitability of these stocks within the portfolio.”
Bamford thought clients would be losing their patience and advisers faced complaints where insufficient risk warnings were provided, or where capacity for loss was not fully considered. “Liquidity is one of the most important investment concepts and is a factor which gets advisers into trouble on a regular basis, when they stray from mainstream assets which are readily available to trade on well-established capital markets.
“If I was an investor in this fund, I would be preparing now to lose anything from 30-80% of my original investment and working with my financial planner to understand the consequences of that loss on my overall financial planning.”
Woodford’s investment thesis
Woodford said when the fund re-opens, it will be a portfolio with more FTSE 100 and FTSE 250 companies, but still reflecting the same investment strategy. “To reiterate, that strategy is founded on a belief that the global economic environment is not as robust as equity markets are implying,” he said.
“Macroeconomic data is increasingly supportive of this thesis, with growth starting to falter in the US, parts of Europe barely growing at all, and further evidence of problems in emerging market economies. Profit warnings have been a regular feature of the second quarter earnings season that recently commenced, and we would expect to see more of these, particularly from global-facing and industrial companies.”
“This results in a meaningful exposure to domestically-focused businesses which I believe, even among the FTSE 100 and FTSE 250 constituents, represent the most attractively valued stocks in the investment universe.”