Woodford to shake up flagship fund

Woodford to shake up flagship fund

Neil Woodford has acknowledged investor concerns about the level of unquoted investments in his flagship Woodford Equity Income fund, and vowed to reduce those holdings dramatically.

In his latest update to investors in the £4.4bn fund, Mr Woodford said the degree to which the fund is exposed to early stage companies had caused "nervousness" among his clients.

He said that in the medium term he will have no exposure to unquoted companies in the equity income fund, and will instead invest in shares in the Patient Capital Investment trust, which he also runs and which was set up as a specialist vehicle to invest in unquoted companies.

The fund manager believes that because the Patient Capital trust is listed and a constituent of the FTSE 250, it will provide liquidity to investors who are worried about this, while also providing exposure to the early stage companies he believes represent a growth opportunity.

He began this process at the start of March by selling some of the unquoted holdings in the Woodford Equity Income fund to Patient Capital, in exchange for shares in the latter.

Mr Woodford promised that the unquoted exposure in the equity income fund would drop below 10 per cent by the end of this year.

He said this would include holdings he has listed on a Guernsey stock exchange. These technically could be counted as listed, though only his stake in the companies is listed, not the rest of the company, and the Guernsey stock exchange has very little trading, so while the holdings do not count as unquoted, they are not very liquid.

Mr Woodford wrote that his interest in these businesses "continues as long as they remain undervalued.".

He has previously stated that there is no lack of liquidity in the fund, despite investors pulling billions out.

When investors withdraw capital at a faster rate than new investors put money in, shares have to be sold to pay those investors heading for the exit.

But as the stakes in the unquoted companies could not easily be sold due to the lack of liquidity, this meant shares in listed companies had to be sold, which increased the proportion of the fund in unquoted holdings.

Commenting on the latest move, Mark Dampier, head of research at Hargreaves Lansdown, said: "We’ve been talking to Woodford Investment Management for some time about the level of less liquid assets in the Equity Income fund, and we think plans to eliminate direct holdings, while retaining some exposure through Woodford Patient Capital Trust, is the right approach.

"The unquoted companies in Woodford Equity Income have been successful investments since the fund was launched, and the plan to reduce exposure means they can still contribute meaningfully to performance, without affecting the fund too negatively if they don’t do well."

Ben Yearsely, director at Shore Financial Planning said: "I am a big fan of unquoted investments in the right structure; Woodford Patient Capital Trust is the right structure, an open ended fund isn’t in my view. So the commitment to reduce the unquoted holdings further in Woodford Equity Income is sensible in my view."