Woodford investors face high costs and losses

Woodford investors face high costs and losses

Investors in the Woodford Equity Income fund are facing significant costs as a result of the fund's winding down, investment experts have warned.

The fund’s authorised corporate director (ACD) Link announced this morning, October 15, that the suspended Woodford Equity Income fund will not re-open in December, as had previously been expected, but will be liquidated instead. 

At the same time Neil Woodford’s firm was fired as the manager, with Blackrock Advisory and PJT Partners taking over the task of selling all of the fund's assets and returning the cash to investors - a process that is expected to commence in January.

With the fund having lost 15 per cent since it was suspended on June 3, and 27 per cent over the past year, investors are already facing heavy losses but they will now bear the additional brunt of the transaction costs of liquidating the fund's investments. 

Adrian Lowcock, head of personal investing at Willis Owen, said: “Woodford will be removed as fund manager and the holdings in the fund will be sold. 

"This means investors may have to wait until next year to firstly find out the value of their investment and then to get their money back. Sadly many people will be looking at significant losses.”

Blackrock has been hired to sell the quoted portion of the fund, and while most of those stocks are liquid and considered an easy sell, both Blackrock and the brokers who sell the stocks will receive commission.

PJT Partners meanwhile was hired to sell the illiquid and unquoted holdings, which is deemed a more difficult, long-winded and potentially costly task.

Jason Hollands, managing director at wealth manager Tilney, said: "Because there is no daily market for the unquoted holdings, and especially because the holdings he has in the companies are very large, it will not be easy or quick or cheap to sell them."

A representative of Link Fund Solutions said: "The role of LFS is to protect the interests of investors, and every decision we have taken, at every point in this process, has been to ensure the best interests of investors are served.

"We expect to make the first payments in January 2020. Sales of illiquid and unquoted assets may take some time and LFS, as ACD, will balance the need to quickly return sale proceeds to investors and the need to avoid a so-called 'fire sale' of assets."

Investor costs will be eased somewhat by the removal of Woodford Investment Management and its associated management fee though, which is effective from today. The firm collected 0.75 per cent of the fund's assets a year. 

Link already waived its fee shortly after the fund's suspension began, as did fund supermarket Hargreaves Lansdown, which sold the fund to its clients. But Woodford Investment Management had previously refused to do so despite repeated urgings.

Ryan Hughes, head of active portfolios at AJ Bell, said: “Link has waived its fee on the fund from the June suspension and investors won’t be charged direct fees while the fund is being wound up.