Did Neil Woodford’s resignation move the markets?

Matthew Jeynes

The one widely reported market move yesterday in the wake of Neil Woodford’s resignation from Invesco Perpetual was from the £1.3bn Edinburgh Investment Trust.

As a listed vehicle, one could see in real time the decline in the trust’s share price as investors sold out of the trust and by the close of markets the trust was the biggest faller on the FTSE 250 index, down 4.98 per cent.

But did Mr Woodford’s departure have even wider repercussions on the UK stockmarket?

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An analysis of the top UK-listed holdings in his funds, the likes of AstraZeneca, Imperial Tobacco and BAE Systems, shows widespread and significant underperformance of the FTSE 100 index among these stocks in the hours following the announcement of Mr Woodford’s departure.

One analyst that I spoke to said he had been getting though a number of notes from sell-side brokers saying that Mr Woodford’s departure was likely to lead to weaker share prices for many of his holdings.

He acknowledged that the news of Mr Woodford’s departure had moved the price on a number of stocks already, which he said was likely down to hedge funds establishing short term short positions, anticipating a further drop in share prices.

Such traders will be anticipating the share prices could drop even further if enough investors sell Mr Woodford’s funds that it causes Invesco Perpetual to substantially reduce its holdings in those stocks.

Take support services firm Capita as an example. A regulatory note on the London Stock Exchange showed that, on August 16 2013, Invesco Perpetual had a 22 per cent stake in Capita. Mr Woodford has roughly 4 per cent in Capita across his funds. Given that he manages roughly £33bn in assets, and Capita’s market capitalisation is only £6.6bn, the majority of the 22 per cent must be in his funds.

While it may be going too far to ascribe cause and effect, the firm’s shares fell off a cliff during afternoon trading, before recovering slightly to trade down 3.62 per cent on the day.

And that’s even without delving into the micro cap or unlisted stocks in the fund.

Another analyst that I spoke to said it was highly unlikely that a manager move, even from Mr Woodford, would move the market. He instead ascribed the negative movement in many of the defensive stocks that typify Mr Woodford’s top holdings as coming as a result of the ongoing debt ceiling debate in the US, which the broker said was dominating market movements.

But given the sheer weight of assets behind Mr Woodford, and the possibility of at least some people looking to sell his funds because of yesterday’s news, it is not too much of a stretch to believe certain stocks will be affected, and eager traders may have spotted a shorting opportunity yesterday.