Neil Woodford’s fund must change its strategy

The Woodford Equity Income fund is reconstituting its holdings into a more liquid portfolio to come out of suspension. The £3.5 billion must meet these requirements by December.

To comply, Neil Woodford has sold unquoted and illiquid stocks amounting an estimated £900 million out of three funds. The bulk of these funds come from Woodford Equity Income.

Woodford has spent £145 million on shares in British American Tobacco (BATS), BT (BT), and British Airways owner International Airlines Group (ICAG).

The Woodford Equity Income suspended in June after it failed to meet demands for redemptions. It will remain suspended until December 2019. The fund’s significant holdings in unquoted, illiquid stocks exacerbated a sudden spike in withdrawals.

Nervous investors

The Woodford Equity Fund faced suspension in June 2019. This came after Kent County Council gave the notice to redeem its roughly £250 million investment. That, coupled with a flood of withdrawals the previous month totaling £190 million, led to a suspension of the fund.

Investors were spooked by the fund’s disappointing performance and the disclosure in March by CityWire that the Woodford had resorted to listing some of the unquoted holdings of the Equity Income Fund on the International Stock Exchange in Guernsey.

Valued at £425 million the Guernsey listings enabled Woodward to comply with an FCA rule specifying a maximum percentage of 10% for a fund’s unquoted holdings.

Later in June, the FCA launched an investigation into the suspension of the Woodford Equity Income fund.

Investment rationale doesn’t change

Meanwhile, a spokesperson commented on the fund manager’s view and that it has not changed. The firm still argues that the global economic environment is not as robust as equity markets are implying. Further, the fund’s repositioning into the FTSE 100 and FTSE 250 companies follows the same rationale. However, it aims to address investor concerns thanks to improved liquidity.

The three stocks above all provide high yields following substantial declines in price.

The Woodford Equity Income fund administrator defends handling of the debacle

Earlier this week, Woodford Equity Income administrator Link said it was cooperating with the FCA in the investigation, and that it had well looked after the interests of investors in the affair, given that the problem stemmed from hard-to-cash assets.

‘There’s perhaps more of a systemic issue around the rules about can you give liquidity in a circumstance where the underlying assets are illiquid?’ said Link Administration’s managing director John McMurtie.