On Monday, it was announced that Neil Woodford’s Equity Income fund – which was suspended in early June – is likely to remain so until at least December.
In a letter to Woodford investors, the fund’s authorised corporate director Link Fund Solutions wrote: “We anticipate that the suspension of dealing is likely to last until early December while we implement the strategy to reposition the portfolio in order for the fund to be reopened at that time, and which is conditional upon achieving the target fund profile.”
Woodford himself apologised and said: “I understand the frustration, inconvenience and anxiety the continued suspension of the fund will be causing you and I am extremely sorry for putting you in this situation.”
Let’s take a look at what this development means for investors.
A little bit of clarity
Naturally, this news of an extended suspension is going to be frustrating for many investors. Given that it’s still early August, we’re looking at the suspension lasting at least another four months. For those who need access to their money, the news is not good.
However, on the plus side, this announcement does bring a little clarity to the situation. As I wrote in early July, there was always a strong chance that the suspension could drag on for a number of months due to the fact that Woodford had to sell so many smaller companies. The worst bit though, for many investors, was not knowing how long the fund would be suspended for.
At least now we have some clarity. That said, there’s no guarantee that the fund will be opened in December, however, another four months should be long enough for Woodford to fully reposition the portfolio.
Once the fund is reopened, investors can expect to see a very different portfolio. In the recent update, Woodford said that investors will see a portfolio with “more FTSE 100 and FTSE 250 companies, but still reflecting the same investment strategy” and added that since the fund’s suspension in early June, up to 80% of proceeds from share sales have been reinvested in FTSE 100 companies. It will certainly be interesting to see which FTSE 100 names Woodford goes for.
Of course, when the fund does reopen, there is no requirement to remain invested in it. You may want to move your money into a new fund – there are plenty of other options. Two UK equity funds that I like, in particular, are the Lindsell Train UK Equity Fund, which focuses on high-quality stocks, and the Franklin UK Rising Dividends Fund. Both have performed well in recent years and are available on the Hargreaves Lansdown platform with low fee structures.
You could also look at investment trusts such as the City of London Investment Trust, which is a conservatively-run UK equity income investment with a good long-term track record, or alternatively, you could even look at putting together your own portfolio of dividend stocks.
Whatever you do though, ensure that your portfolio is fully diversified. The ultimate takeaway from the Woodford suspension is that when investing for the future, risk management is critical. Never put all your eggs in one basket.
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Edward Sheldon owns shares in Hargreaves Lansdown and City of London Investment Trust and has positions in the Lindsell Train UK Equity fund and the Franklin Rising Dividends fund. The Motley Fool UK has recommended Hargreaves Lansdown. 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.