In a video published on his company’s website on June 4, Mr Woodford said he was “extremely sorry” and blamed the stock market for “anticipating” that it would happen, which forced him to take action.
He said: “Suspension provides time to execute the strategy we have communicated to our investors… reducing the funds’ exposure to illiquids and unquoted stocks down to zero.”
But some say the fund’s poor performance has driven supporters of the most famous fund manager in the country away for good. However, others believe the suspension gives the manager the time he needs to fix it.
While there may never be a good time for Mr Woodford to suspend his flagship fund, it comes at an especially inopportune moment for the retail investment industry, which has experienced months of fund outflows.
What happened?
On June 3, Mr Woodford decided to temporarily close the £3.7bn Woodford Equity Income fund shortly after the Kent County Council asked to withdraw the £250m invested with him through its pension fund.
Some say Woodford's fund’s poor performance has driven supporters of the most famous fund manager in the country away for goodOn the same day, the Keir Group, one of the fund’s substantial holdings, issued a profit warning prompting its shares to plunge by more than 40 per cent, adding to Mr Woodford’s losses.
Dealing within the fund was suspended to protect the best interests of shareholders after it experienced significant outflows averaging £9m each business day in April.
The fund – which was once £10bn in size – has now lost 21 per cent over the past three years, while the Investment Association UK All Companies sector gained 25 per cent.
But it was only last month, on May 3, that Hargreaves Lansdown sent an update to its investors that the reduction in less liquid assets in the Woodford Equity Income fund was “a step in the right direction”.
But the fund has now been removed from its Wealth 50 list.
Emma Wall, head of investment analysis at Hargreaves Lansdown, explains it decided to remove the fund because it “could no longer be traded”, while the Woodford Income Focus fund was also removed due to “so much uncertainty”.
On June 5, Hargreaves Lansdown announced it would waive the platform fee on the Equity Income fund while dealing is suspended.
Ms Wall explains: “We do not think it is fair to charge our clients a fee while they cannot trade in the fund. This is a frustrating and difficult time for clients and we are doing what we can to support them.
“We have been in communication with Woodford Investment Management to explain why we think this is the right thing to do and have put pressure on them to do the same.”
Wealth management giant St James’s Place also announced it was ditching Mr Woodford as manager of the £3bn of assets he ran for its clients, despite having vowed to stick with Mr Woodford just a few days before.
The Financial Conduct Authority confirmed it was aware of the situation and “in contact with the firms involved to ensure that actions undertaken are in the best interests of all the fund’s investors”.
In a statement, the regulator said: “Suspensions are recognised as a legitimate tool internationally,” adding, “where the FCA believes there are circumstances suggesting serious misconduct or non-compliance with the rules it may open an investigation”.
What happens now?
Jason Hollands, managing director of business development and communications at Tilney, says the platform removed the fund from its list in March 2018, having put it under review in December 2017.
He explains: “This wasn’t solely down to performance, but also because we felt the shape of the fund had evolved towards earlier-stage companies and the fund was losing the more defensive characteristics we had previously associated with it.”
He says he agrees the suspension provides a period for the manager to reshape the fund and potentially realise some of the value in the unquoted holdings.
“At this stage, it is difficult to know how long this will take as that will ultimately depend on the market environment,” he added.
“A turn in sentiment towards UK domestic stocks, a reopening of the smaller company [initial public offering] market would be the sort of factors that could help the fund accelerate this process.”
He suggests it is unlikely the fund will re-open after one month, but that it largely depends on the conditions of the UK market.
Key points
- Neil Woodford was forced to suspend trading in his equity income fund last week
- Many big investors have pulled out of the fund
- The future success of the fund depends on what happens with market sentiment towards small stocks
It would not be a surprise if the suspension extended beyond 28 days, according to Ryan Hughes, head of active portfolios at AJ Bell.
He explains: “Some of the positions the fund holds in unquoted stocks are very large and they are not going to be easy to sell quickly.
“Patience is going to be key for existing investors in the fund and they need to bear in mind that the suspension has been put in place to protect their best interests.”
He adds: “One of Woodford Investment Management’s strengths has been its transparency around the investment approach adopted by the funds and so you would expect them to communicate clearly and regularly with investors as the situation unfolds.”
When the fund finally does re-open it is likely to see “even more money heading for the exit door” and “Woodford will have a big task to steady the ship”, says Patrick Connolly, head of communications and a chartered financial planner at Chase De Vere.
While there is no denying that his reputation has taken a huge knock and his star manager status has been dented, Mr Connolly says it does not mean that he cannot bounce back.
He explains: “His approach of investing in out-of-favour UK domestic stocks may come good in the end, although by then many investors will have lost quite a bit of money or already exited the fund.
“It will take time for Woodford to rebuild his reputation and his fund, and, whether he has any chance of success, depends on how much he really wants it.”
Ben Yearsley, director of Shore Financial Planning, says he believes Mr Woodford can recover, but that “the market we are in might outlast his ability to keep assets in the fund”.
Mr Yearsley notes: “He has very specific views on the UK economy and the attractiveness of certain stocks and sectors within the market believing them to be very cheap.
“Whilst undoubtedly this is true, [Mr Woodford] has not got any influence over when the share prices of these companies might stage a recovery and it could take anywhere from two weeks, two months or two years even.
“If it’s the latter, then will Woodford Investment Management be around for its funds to benefit?”
He continues: “If it’s two weeks, then [Mr Woodford] will have been proved right and this will be seen as a temporary blip.
“This is the point of active investment – you are taking views different to the market, sometimes they play out quickly, and other times may take years.”
He adds: “If it’s years, then can you carry your investors with you through the pain of underperformance in the early years?”
Darius McDermott, managing director of Fundcalibre, says: “Whether or not he manages to bounce back, the suspension will have highlighted some of the issues in the fund to a wider public.”
Victoria Ticha is a features writer of Financial Adviser and FTAdviser.com
