In an article on 5 May, titled “Could the House of Neil Woodford be about to collapse?”, I warned Woodford’s flagship Equity Income Fund (WEIF) was in such a distressed state that “we’re looking at a vicious spiral that could potentially lead to the fund imploding, and a star manager downfall on a scale I’ve not seen before.”
Further, that in the absence of a change in the trajectory of redemptions from WEIF, “broker Hargreaves Lansdown (which holds it in its house funds and has controversially retained it on its influential Wealth 50 list of recommended funds for its clients) would surely have to pull the plug to limit its own reputational damage.”
You may have missed my article, but you can hardly have missed the avalanche of Woodford news over the last seven days. This began with the gating of WEIF, preventing investors withdrawing their cash. And, belatedly, Hargreaves Lansdown removed it from its Wealth 50 list.
Woodford has also lost his mandates to run funds for wealth managers St James’s Place and Omnis. With the Financial Conduct Authority, the Bank of England and politicians putting the collapsing House of Woodford under scrutiny, can the once-revered fund manager turn the tide?
Flagship
WEIF’s value has fallen from a peak of over £10bn to £3.7bn. As a result of redemptions, it’s had to sell-down its most liquid holdings, and now has a preponderance of unquoted and illiquid stocks. The gating of the fund is to allow Woodford time to dispose of these, and build enough cash and liquid holdings to meet redemptions when the fund re-opens.
I think this’ll take many months. Furthermore, as I’ve discussed in the past, there are suspicions Woodford’s unquoted stocks are in the books at over-rosy valuations. If so, this would likely be damagingly exposed in their sale. Even if it isn’t the case, he’ll need considerable liquidity to re-open the fund.
We know Kent County Council wants to withdraw £250m. There are also reports Hargreaves Lansdown is considering dropping WEIF from its multi-manager funds (around £600m). And there will inevitably be a rush of retail investors heading for the door, when — or, indeed, if — the fund is ungated. For the time being, investors are lobster-potted in WEIF, and can only wait.
Income Focus Fund
Woodford’s smaller (around £400m) Income Focus Fund (WIFF) remains open for dealing. However, Hargreaves Lansdown has also dropped this fund from its Wealth 50 list, advising investors who don’t need its high income to “consider their position.”
While WIFF holds no unquoted stocks, and is thus more liquid than WEIF, it’s not as liquid as many of its peers (for example, only three of its top 10 holdings are FTSE 100 stocks). Redemptions have accelerated to over £10m a day since WEIF was gated, and I see a real risk of WIFF also having to be shuttered.
Hospital case
Finally, Woodford Patient Capital Trust is a closed-end fund, so can’t suffer from redemptions. However, its shares have plummeted over the past week. They’re trading at 64p, as I’m writing — a 26% discount to net asset value — so the market is clearly viewing Patient as a hospital case.
Given it has a £150m overdraft, and vast exposure to unquoted companies (whose valuations I have doubts about), I’m more than happy to avoid WPCT.
