InvestmentsAug 26 2014

Skandia: Woodford exodus made Invesco funds ‘untenable’

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Skandia has defended its position to close two Invesco Perpetual Income and High Income mirror funds and move clients into a newly created vehicle offering exposure to the Woodford Equity Income fund, saying an inevitable exodus would have made the vehicles “untenable”.

Paul Feeney, chief executive officer of Old Mutual Wealth, said in a letter written to investors last Friday (22 August) that the firm had been stuck “between a rock and a hard place with regards to how we manage Neil Woodford’s resignation” and that these were “truly exceptional circumstances.”

The note to investors said: “Whilst theoretically we could have kept the funds open, the demand we have seen from advisers for Woodford would have resulted in even greater redemptions from the Invesco Perpetual funds.

“This would have resulted in the TER of the funds increasing and ultimately the Skandia funds becoming untenable.

“We therefore felt it was most equitable to move all clients at the same time to a lower cost and more sustainable solution and so took the decision to close the existing Skandia Invesco Perpetual funds and transfer the assets into the new Woodford fund.

“Alternatively customers are free to transfer into any other fund in our Skandia Life range, including the Skandia Invesco Perpetual Strategic Income fund.”

In the original note to investors the firm said that trading costs from the purchase of the new fund for investors was expected to be around 1 per cent, meaning it will cost investors around £6.4m for their collective £640m mandate to be moved.

However, Skandia also stated the TER on the new funds would be 1.10 per cent, compared with 1.30 per cent for the old funds, and that this would save money in the longer term.

Mr Feeney said: “There are transactional costs associated with the transfer to the Woodford fund, but we believe the likely impact to customers remaining in the Skandia Invesco funds warranted this decision.

“In addition, we have driven down the ongoing cost to investors with an 18 per cent reduction in TER between the new Woodford fund and Skandia Invesco funds.”

Last week, FTAdviser reported that the new fund, OMW Old Mutual Woodford Equity Income fund, will be positioned in the firm’s WealthSelect Range. Both the Skandia Invesco Perpetual High Income fund and the Skandia Invesco Perpetual Income fund were positioned in Skandia’s Life insurance range, with a total mandate value of £640m.

Last year the firm wrote to advisers with clients invested in 23 funds offered through Skandia Life, explaining plans to restructure them. However, the firm delayed any restructure on the Invesco Perpetual funds due to Woodford’s departure from the firm.