Talking Point  

“Woodford effect” creating an opportunity for investors

“Woodford effect” creating an opportunity for investors
Valdermas D/Pexels

Publicity around the demise of the investment empire of fund manager Neil Woodford has enhanced the investment opportunity in many smaller company shares, according to David Clark, equity fund manager at Saracen.

Mr Woodford’s investment firm, Woodford Investment Management, collapsed in October 2019, after he was fired from the management of his Woodford Equity Income fund following a period of stark underperformance, the fund had to be gated as the volume of illiquid assets made it difficult for the level of redemptions to be met. 

Mr Woodford’s protege and successor as head of equities at Invesco, Mark Barnett, also suffered sustained underperformance and difficulties with his unquoted and illiquid holdings before leaving his role as head of UK equities in May 2020. 

Mr Clark says the publicity around the travails of those high profile managers led to a retreat from smaller companies investing by the bigger funds, and means that, even as the market has rallied in the months since the first vaccine news was announced, sentiment towards small caps has remained muted.

He says some of the largest funds on the market that can choose to invest in smaller companies have been reducing their investments in those assets as they fear that if there was to be a wave of redemptions, the assets would be difficult to sell. 

Mr Clark adds that with the recent waves of consolidation in the industry there are more large funds, and fewer small funds, and therefore fewer buyers of smaller company shares, which means the valuations at which smaller companies trade have become cheaper in recent years. This means there are better opportunities for the dwindling number of investors in the market. 

Mr clark says: "Just because you can't sell 100 per cent of your holding in an afternoon doesn't mean it's a problem, but the big institutional investors are increasingly viewing it like that"