Neil Woodford's flagship fund suspended

The decision comes after the fund suffered a spike in withdrawals from investors.

Sales and purchases of the Woodford Equity Income fund have been suspended following a wave of new redemptions.

In a statement posted on Woodford Asset Management's website, it was announced that the issue, cancellation, sale, redemption and transfer of shares in the fund have been suspended.

The decision comes after the fund suffered a spike in withdrawals from investors. According to the Financial Times, Kent County Council recently notified Woodford it would withdraw its £250 million holding. 

The fund's assets under management have fallen from £10 billion around two years ago to under £4 billion at present.

According to the statement, the decision to suspend trading was taken to "protect the investors in the fund."

One analyst, points out, unquoted companies held within the portfolio increased the strain caused by these redemptions.

In open-ended funds, when investors sell their holdings, the fund has to sell a portion of its underlying assets to return cash to the investor. However, unquoted companies often taken longer to sell.

He states:

"it is clear that the fund was having to sell the more liquid holdings to fund the redemptions, which in turn can exacerbate the problem. This is not a decision that will have been taken lightly and it is done to protect the interests of remaining investors."

A similar inability to sell illiquid assets caused a number of open-ended property funds to suspend trading following the 2016 Brexit vote.

The temporary suspension, the statement notes, is intended to give Woodford time to reposition the fund’s portfolio from unquoted shares to more liquid investments.

However, another commentator warns that the suspension may see more investors eventually jump ship.

He notes: "Investors will understandably be concerned and, unfortunately, while the fund is suspended they will not be able to get their money. 

"The suspension is likely to result in further outflow requests once the fund reopens, putting more pressure on Woodford."

In a note to shareholders in March 2019, Woodford argued that right now was the best time to buy UK shares in three decades. Pointing out that domestic UK equities have been unfairly punished since the Brexit vote in June 2016, he said the UK market is "a valuation opportunity, the likes of which I haven't seen for more than 30 years."

Moira O'Neill, head of personal finance at interactive investor, mentions:  "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. He is limited in how much he can own and as a consequence, 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."

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