Investors are unable to trade Neil Woodford's flagship fund currently. Our experts share their thoughts.
Trading of LF Woodford Equity Income Fund has been suspended following a decision by the Authorised Corporate Director of the Fund - Link Fund Solutions (LFS) - in agreement with the fund's investment manager, Woodford Investment Management.
The suspension follows a sharp reversal in popularity. In May 2019, Woodford Equity Income Fund was the 151st most-bought open-ended fund on the interactive investor platform, compared to the 15th most-popular fund in May 2018.
Moira O'Neill, Head of Personal Finance, interactive investor says: "Almost three years since we saw several property funds suspend trading in the wake of the UK referendum due to liquidity issues, and several months since the Financial Conduct Authority (FCA) launched a consultation on illiquid assets and open-ended funds, this suspension will focus minds, and perhaps sharpen regulatory pens. Once again it opens the debate on what the Association of Investment Companies (AIC) dubbed 'the elephant in the room' – that the open-ended structure is never going to be ideal for illiquid assets such as property.
"However, the reality is that like the big property funds back in 2016, Woodford has similar liquidity issues as he holds unquoted stocks and other highly illiquid holdings, although much has been done to transfer many of the unquoted stocks to Woodford Patient Capital Trust (LSE:WPCT), with a closed-ended structure much better suited to illiquid assets.
"He is limited in how much he can own and so, when the fund suffers significant redemptions, the fund is forced to sell the most liquid stocks first. A period of time is required for Woodford Equity Income to rebalance the fund and achieve the right balance.
"In relation to what this means for the fund, we can't tell at this point – but the big property funds that suspended pricing and redemptions in 2016 have recovered strongly in the three years since. But this is a reminder of the importance of having a balanced portfolio. And if you have lots of exposure to illiquid assets such as property, it is worth making sure you are comfortable with the structure."
Dzmitry Lipski, Investment Analyst, interactive investor, says: "Investors shouldn't panic - the best thing to do is to sit it out and wait for Woodford to provide further clarity as to how the fund will be managed going forward and how he is planning to resolve the issues.
"The fund today is very different to where it was three years ago, with much of the unquoted holdings transferred to Patient Capital. But clearly when there is a run for the door, any unquoted holdings are going to be problematic.
"While this has never been one of interactive investor's Super 60 rated funds, this is a good time for investors to take a hard look at their diversification."
During the period that share dealing is suspended, interactive investor will accept no requests to redeem, purchase or transfer shares in the Funds. When LFS elects to resume dealing in the shares of the Fund, we will write to all investors informing them of this fact.
Investors who have a Direct Debit set up to automatically invest in Woodford Equity Income every month will not have their investment actioned this month. Instead, their money will be collected as usual and held in cash.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.