Trading in the major market indices has been subdued today, with the FTSE 100 down just a quarter of one percent as I write, and the FTSE 250 up half a percentage point. However, the pound reached a five-month high against the euro on comments from lead EU Brexit negotiator Michel Barnier that a deal is possible.
Regardless, today is likely to be the deadline for any deal, as it would need to be ratified by EU leaders at Wednesday’s summit. If it does not agree to the deal, it will consider an extension. In the event that a Brexit deal is not reached, Saturday will then become the new deadline for Parliament to decide whether to ask for an extension to Article 50.
Woodford Equity Fund
The time is finally up for Neil Woodford’s Equity Income Fund. Today, the decision was made to not re-open the fund for trading, and instead to appoint an external asset manager to conduct an orderly sale of its holdings.
The fund was suspended back in June, when mounting levels of redemptions caused a liquidity crisis, locking in investors in an attempt to allow Woodford to generate some much-needed cash. Woodford had a large number of illiquid assets on its books, which made it difficult to return capital to investors when they started losing confidence in his management. Ironically, it was the previous wave of redemptions that forced Woodford to sell many of his large-caps, thereby making illiquid assets a much larger proportion of his overall portfolio.
What does this mean for investors in the fund? Unfortunately, they will have to wait until at least January to get their money back. The liquidation process has to be drawn out to ensure that Woodford’s assets are sold at reasonable prices, which ultimately should ensure that investors will get as much of their capital back as possible. Still, this is hardly the news that they would have wanted to hear.
Unsurprisingly, Neil Woodford himself believes that his firing and the liquidation of his fund is a mistake, stating: “This was Link’s [the appointed corporate director’s] decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income Fund investors”.
Meanwhile, questions continue to percolate about the future of his other investment vehicle, Woodford Patient Capital (LSE: WPCT), shares of which are down almost 9% today. Although it is a separate entity to the Equity Income Fund, investors are now questioning its governance and management’s decision-making, fearing that the same problems could rear their ugly heads again. There is speculation that Neil Woodford could be replaced as head of Patient Capital, and that it may cease to exist altogether.
Perhaps the lesson to be learned from this is that internal governance can be weak in funds headed by celebrity investment managers. As with stocks, it is often advisable to invest in relatively unknown entities. Or better yet, get a Stocks and Shares ISA and take control of your retirement savings.
