Neil Woodford’s flagship Woodford Equity Income Fund is to be shut down. Here, I’ll explain what today’s news means and when investors can expect to get their cash back.
I’ll also ask what we can learn from this fiasco, which has already seen investors locked out from their cash for over four months.
Note: today’s news only affects the Woodford Equity Income Fund. The Income Focus Fund and Patient Capital Trust aren’t currently affected.
What’s happened?
Link Fund Solutions, the company which operates the Equity Income Fund, has decided to close the fund. Link is the fund’s Authorised Corporate Director (ACD). Under FCA rules, all funds must have an ACD. Fund managers — such as Woodford — are merely the stock pickers.
When the fund was suspended in June, Link agreed to give him time to try and sell some of the fund’s unlisted assets. The goal was to switch most of the fund’s cash into FTSE 350 stocks, which could then be sold to meet redemptions when the fund was reopened.
However, in a statement today, Link said there hasn’t been enough progress to provide confidence about when the fund might be reopened. As a result, Link has decided to wind up the fund, with Woodford effectively sacked.
What happens next?
FCA rules mean investors must be given three months’ notice before a fund can be wound up. So the process of liquidating the fund will begin on 17 January 2020.
In the meantime, Link has divided the Equity Income Fund into two parts. The first contains listed assets that can easily be traded. These will be taken over by US investment giant Blackrock.
Blackrock will sell these shares and switch the money into money market funds and FTSE 100 index securities, ahead of liquidation. The remainder of the Equity Income Fund consists of unlisted and hard-to-sell listed assets. These are being handled by a specialist adviser who will work to find buyers for these assets.
After 17 January, Blackrock will liquidate its part of the portfolio. The cash will be returned to shareholders — Link says it hopes to make the first payment by the end of January. Further payments will be made when possible, after the deduction of fees incurred in the liquidation of the fund.
If you’re an investor in the Woodford Equity Income Fund, you should receive a letter from Link Fund Solutions with more details. The liquidation will apply to all investors in the fund.
What can we learn from this?
For about 25 years, Woodford was revered as one of the UK’s top fund managers. But his decision to go it alone and change his investment style has backfired badly.
In my view, the biggest warning flag was Woodford’s decision to invest heavily in unlisted assets and startups. This was a departure from his core area of expertise, large cap dividend stocks. Unfortunately, this event is a reminder that even the most successful fund managers can come unstuck.
Personally, I’m not keen on paying other people to invest my cash. I’d prefer to invest in a mix of index trackers and hand-picked stocks, safe in the knowledge that any mistakes (and successes) will be my own.
