In a shock development, under-fire portfolio manager Neil Woodford announced yesterday share trading in his flagship Equity Income fund has been suspended. Clearly, this is bad news for investors in the fund because it means they can’t currently access their money.
However, it’s not just Woodford investors that will be impacted by this suspension, as it’s likely to have implications for a number of popular FTSE 100 stocks. Here’s a look at three stocks that could be affected.
Online broker Hargreaves Lansdown (LSE: HL) is one company that could certainly be impacted by the suspension. That’s because, despite the fund’s shocking recent performance, the broker continued to include it in its Wealth 50 list of top fund recommendations.
This raises questions over conflicts of interest and the quality of Hargreaves’ advice. As Gavin Lumsden, editor-in-chief at Citywire said: “While Hargreaves Lansdown’s reputation for service is undimmed, the credibility of its investment guidance and stewardship of customers is damaged.”
Today, Hargreaves has dropped the fund from its Wealth 50 list. However, the stock is down more than 4% on news of the suspension, and I wouldn’t be surprised if the shares fall further in the short term while the issue remains in the headlines. From a long-term view, however, I remain bullish on Hargreaves shares and, in my opinion, any short-term weakness could be a buying opportunity.
St. James’s Place
In a similar position is wealth manager St. James’s Place (LSE: STJ), for whom Woodford manages around £3.5bn. Its shares have also taken a hit today. While many other wealth managers have abandoned Woodford in the recent past due to his poor performance, St. James’s Place has continued to back the portfolio manager.
Indeed just last week, St. James’s Place’s chief investment officer Chris Ralph told the Financial Times while the group was closely monitoring the fund manager’s performance amid withdrawals from investors, it remained “confident in Neil Woodford and his ability to manage our clients’ money as mandated.”
And the company later issued a statement saying it had no plans to change Woodford’s mandate. This faith in the struggling portfolio manager may hurt the group in the short term although, like Hargreaves, I continue to see long-term appeal in the shares.
Finally, the suspension could actually be good news for tobacco giant Imperial Brands (LSE: IMB). Imperial’s share price has taken a big hit in the last year, and this may be partly related to Woodford’s selling activity.
This time last year, Woodford’s Equity Income fund was worth around £7bn and Imperial Brands was a top holding at around 7-8% of the fund. This means Woodford had over £500m invested in the tobacco company. Now, however, the fund is worth around £3.7bn and the weighting in Imperial is only around 3%, which equates to a holding worth a little over £100m. This suggests to me Woodford has had to dump a large number of Imperial shares to meet clients’ redemptions and this won’t have helped IMB’s share price.
Interestingly, Imperial is up over 2% today. With Woodford no longer forced to sell the stock, perhaps the tide is about to turn for the out-of-favour tobacco giant?
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Edward Sheldon owns shares in Hargreaves Lansdown, St. James's Place and Imperial Brands. The Motley Fool UK has recommended Hargreaves Lansdown and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.