Woodford Fund Suspension

The recent dealing suspension of Woodford Equity Income has caused investors understandable consternation. This unusual, though not unprecedented step has been undertaken to protect remaining shareholders in the fund after a period of large redemptions. With the latest news coming from Link Fund Solutions Ltd that the suspension will last until early December at least. We take a look at why the fund was suspended and what this means for investors who remain in the fund.

In the case of the Woodford Equity Income fund, the large volume of redemptions and liquidity issues that have since emerged occurred because the fund size was permitted to grow too large in the context of the portfolio composition.

Investors would have been aware of the Neil Woodford’s favouring for smaller and un-coming businesses but would also have expected the elevated risk taken within this allocation to be appropriately balanced by robustness and superior liquidity in the remainder of the portfolio.  Evidently, this was not the case and following a long period of underperformance many stared withdrawing from the fund. The large levels of illiquid stocks meant that the fund was unable to keep up with redemptions and the fund was suspended. The suspension has highlighted the risk that fund managers run by allocating a large percentage of holdings in less liquid investments.

Whilst the fund remains suspended work is being carried out to re-balance the portfolio in favour of more liquid holdings. The fact that December has been given as a potential date for the fund to re-open indicates that there is confidence from Woodford that the fund will re-open, but they are cautiously preparing for the inevitable number of redemptions that will ensure when it does. A £3.5 billion fund is still substantial, but it is hard to imagine an easy future. Woodford has previously emerged form periods of heavy criticism to confound detractors but, whether he can do so again remains to be seen.

If you still have holdings in the fund all you can do at this stage is sit tight and wait patiently for the fund to re-open. Income will continue to be paid out and the fund continues to be valued daily.

This article is for information only and reflects the author’s views at the time of writing, which are subject to change. This should not be regarded as a recommendation or solicitation to invest. If you are in any doubt about the suitability of an investment for your needs, you should seek professional advice.