How is Neil Woodford's flagship fund getting on?

Three months after suspension and the Woodford Equity Income fund has continued to suffer from specific stock-related issues. 

It is almost three months since star fund manager Neil Woodford took the decision to temporarily suspend trading of his flagship Woodford Equity Income.

The decision was not greeted kindly. Woodford himself has come under fire for choosing to fill his portfolio with relatively illiquid stocks, creating a liquidity mismatch, which forced the fund to suspend trading. As a result, regulators have become increasingly concerned about the liquidity open-ended funds promise.

Woodford's reputation as a fund manager has also taken a blow. First, Woodford has continued to come under fire for continuing to charge investors in the suspended fund management fees. At the same time, the fund manager's reputation as a skilled stockpicker has been dented.

Woodford, however, promises to fight on. In the latest update from the Link Fund Solutions, the authorised corporate director of the fund, Woodford Equity Income is expected to be on track to re-open in December, once the fund has been rebalanced to more liquid stocks.

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According to the statement from Link:

"Based on the progress made to date, [we] remain of the view that this is a realistic timeframe and therefore have decided that it remains in the interests of all investors for the suspension of dealings to continue."

Three months into its suspension (and with supposedly three months left until it re-opens), how has the fund performed?

According to data from FE Trustnet, out of 262 funds in IA UK all companies sector – LF Woodford Equity Income the worst performer between 3 June and 23 August. Over the period, the fund lost investors 11.2%, compared to a sector average return of 0.37%.

According to Adrian Lowcock, head of personal investing at Willis Owen, the poor performance is to be expected. He says:

"The challenge he faces is huge and the market backdrop hasn't helped."

On the one hand, Lowcock points out, trading costs incurred by Woodford's rebalancing will be eating into returns.

At the same time, the fund has continued to suffer from specific stock-related issues. For example, one of Woodford's largest holdings, Burford Capital (LSE:BUR), saw significant damage to its share price after US investment company Muddy Waters put out a very critical note.

More recently, Industrial Heat's valuation has taken a hit, while Eddie Stobart (LSE:ESL) has suspended trading. Other holdings such as Kier Group (LSE:KIE) have seen profit warnings. 

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However, says Lowcock, "stock-specific issues are nothing new to Woodford and reflect how the fund was positioned before its suspension with some higher risk investments and a very domestic focus".

He adds:

"With Brexit uncertainty continuing and the unlisted element having risen recently it will be a challenge for Woodford to complete the repositioning by December".  

Woodford's fund, however, was far from the only fund in the sector with negative returns. Other poor performers included ASI UK Recovery Equity (-7.7%), ASI UK Opportunities Equity (-6.4%), L&G UK Alpha(-5.5%) and JOHCM UK Growth (-5.1%).

Among the best performers over the time period were Royal London Sustainable Leaders (+7.6%), Thesis TM Sanditon (+7.6%), Threadneedle UK Growth & Income (6.8%), LF Lindsell Train UK Equity (+6%) and TB Evenlode Income (+5.7%).

Woodford Equity Income fund was also not the only of Woodford's funds to take a knock. LF Woodford Income Focus was the worst performer in IA UK Equity Income over same time period – down 9.57%. The sector's average return was 0.04%.

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.