When Neil Woodford’s Equity Income fund was suspended on 3 June, there was a little confusion as to when the fund would be reopened for trading. For example, a number of sources said the fund would only be locked up for 28 days. However, a statement on the Woodford Investment Management website actually read: “We will keep all investors appropriately informed about the suspension, including its likely duration,” meaning there was no timeframe provided.
As I write this on 30 June, there’s still no news in relation to when the lockup could be ended. And by the time you read this on Monday morning, it will be 28 days since the suspension was announced. Will it end soon? That’s hard to say. However, there’s a chance investors could be waiting a while longer to get access to their funds.
Portfolio repositioning
Woodford’s plan to sort things out is to unwind the current portfolio, which consists of a number of smaller growth stocks and unquoted companies and reinvest the proceeds into more liquid FTSE 100 stocks. That’s a sensible strategy, in theory. However in reality, it could prove to be quite difficult due to the fact that Woodford had such large positions in some of his companies.
According to analysis from Morningstar, Woodford (across his multiple funds) owned over 19% of 23 different companies and over 15% of another 13 companies. This means he was a major shareholder in a large number of companies.
Examples include mattress maker Eve Sleep, in which Woodford owned over 45% of the stock and the Equity Income fund owned 11% of the company, and Xeros Technology, where Woodford owned 40% of the company and the fund owned around 19%.
Now if you only hold a few shares in a company, it’s generally not hard to liquidate your position. However, if you own 20% of the company, it’s a completely different story. Getting out without crashing the stock is likely to be a challenge and will take time.
Slow progress
In order to avoid crashing the share prices of the stocks he owns, Morningstar believes Woodford could sell up to 20% of each stock’s 30-day average trading volume per day until the position is exited.
So, in the case of Eve Sleep, where its average trading volume is around 1.2m shares, Woodford would need 119 trading days to completely sell out, assuming he finds keen buyers for the stock. Similarly, selling the Equity Income fund’s position in Xeros Technology could take nearly a year.
So overall, it could take many months for Woodford to sell his entire portfolio and reposition it in FTSE 100 stocks. Morningstar’s worst-case scenario is that it takes the portfolio manager around 260 days to liquidate the entire portfolio.
I really hope, for the sake of all the investors who need access to their capital, that it doesn’t take that long for the trading suspension to be lifted. For now though, all we can do is wait patiently and see what happens.
