WOODFORD INCOME EQUITY FUND

Neil Woodford is one of the UK’s best-known fund managers. He has had a hugely successful career over a 30-year period. Anyone who invested £10,000 at the start of his quarter-of-a-century career at Invesco Perpetual would have seen their money grow to almost £250,000 by the time he left. It is true to say he achieved his fair share of fame. Now, the suspension of LF Woodford Equity Income fund follows years of poor performance – falling 34% in the past two years, he now has had to take the decision to close the fund and also come out of the remaining two funds. We take a look at where it went wrong and what lessons can be learned from the event. With the Brexit decision over the weekend not going to plan, which was maybe somewhat suspected, the market open will not be particularly good for Neil Woodford or the remaining listed funds he controls. The performance of his flagship fund has led to the situation he currently is in and with withdrawals in the region of £10million a day, this was not sustainable. The trigger for the suspension came with Kent’s county council pension fund’s request to take out its £263m holding. The trustees of Kent’s pension fund – who had been trying to stem the losses Woodford had racked up for its 110,000 members – decided to pull out when it emerged at the end of last month that the flagship fund had shrunk by £560m to £3.77bn in just four weeks. At its peak the fund was worth more than £10bn. Instead receiving their money back, investors saw the fund being put into suspension whilst Woodford frantically tried to re-order and liquidate the positions in the fund. The whole scenario has arisen from what can be seen as possibly inappropriate marketing of what seems to be a high-risk fund. An investment fund that by then resembled an equity income portfolio in name only, not invested in a portfolio of income- friendly UK companies as investors would have expected, but one that contained higher risk illiquid investments. This is where the problem lies, the fact that a low risk income investor, if given the opportunity and the knowledge of what Woodford income equity really was, may not have invested in the first place. There are plenty of higher risk profile investors who invest in start ups and illiquid positions, in the hopes of large gains. They are normally calm during phases of poor performance and so do not sell, knowing they are invested for the long term, while the expectations of a low risk income investor are  almost the opposite methodology to this. The marketing was certainly not helped by Hargreaves Lansdown, so much that many investors point blame at them for allegedly aggressively marketing the fund and placing it in their Wealth top 50 despite their concerns    regarding the liquidity and performance of the fund. During the falling price the fund, Neil Woodford still maintained his full fee schedules and took his Woodfees. The FCA and now legal firms are looking closely at what has transpired to see if all positions where taken compliantly and with the client’s best interests or whether it is a case of fraud.   With the market being eternally a place that profits out of others people’s misery, there has been a possible ray of hope for some interested investors. Some of Woodfords companies have been artificially pushed to levels they would have never reached ad had it not been for the fire-sales taking place. For example Eve Sleep, the beguiled mattress company, has fallen on hard times. At the beginning of the month it was trading at 1.8p and has recently hit 3.6p, giving the savvy investor a 100% return in a short space of time. Of course, there are risks involved and there are no guarantees but investors may be able to benefit from a     Woodfail, that gives the opportunity for a good short term trade. We at London Stone Securities have highlighted a few notable positions that could be of interest if you would like to know more get in touch. What will happen to Woodford will remain to be seen, the risk now is contagion risk, with indexes near recent highs longer term funds are starting to see withdrawals accelerate at record pace, this could have a snowball effect that may bring significant volatility in the short term. The environment creates a perfect upcoming stock picking          opportunity. If you are concerned about the contagion risks of Woodfords funds to your portfolio contact us today on 0203 697 1700 or email us at enquiries@londonstonesecurities.co.uk   Click here to download the full report.