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The benefits of our active management approach and the importance of having a well diversified portfolio with a number of fund holdings were highlighted this week when news broke that the Woodford Equity Income fund was being suspended from trading.  You may recall that we sold client holdings in the fund within our model portfolios last year. This was based on disappointing performance, concern about the more illiquid small stocks held within the fund and a desire to reduce exposure to UK equities due to Brexit risks.

In the last couple of years, the fund has seen large redemptions (sales of client holdings) and shrank in size from over £10 billion at its peak to £3.7 billion. As redemptions gathered pace this year the manager had to sell down the more liquid holdings in larger companies. This left the fund skewed towards its smaller holdings, which are more illiquid and include some private companies which are not listed on a stock exchange. The situation was compounded by the poor performance of some of the larger companies in the portfolio including Kier and Provident Financial. Ultimately, a large sale request of £263 million by Kent County Council pension fund forced the suspension of the fund. This gives Woodford Investment Management some breathing room to re-orientate the portfolio towards larger, more liquid companies. It is expected to remain suspended for at least 28 days.

The suspension means that no sales or purchases can be made in the fund at this time and assets in the fund will be held in safe custody. Woodford Investment Management are providing daily pricing information based on the underlying holdings for information purposes only so fund holders and platforms can access valuations. During the period that dealing is suspended no requests to buy or sell units in the fund will be accepted.

The share prices of two publicly listed national wealth management firms, Hargreaves Lansdown and St James’ Place, were impacted by the news because they had continued to back Woodford Investment Management. Hargreaves Lansdown had the fund on their “Wealth 50” list of suggested fund holdings and only removed it after the fund had been suspended. The size of the flows the platform directed into the fund on behalf of clients allowed them to offer the fund at a discounted price of 0.65% per year compared to 0.75% for most platforms. The fund is also held in six of its multi-manager portfolios, amounting to a combined £621 million stake as of March 2019. St James’ Place had an arrangement for Woodford to manage a UK equity fund on their behalf. They announced this arrangement would be discontinued following the suspension of the main fund.

We continue to keep an eye on developments at Woodford Investment Management as part of our extensive investment research and it will be interesting to see the details of the underlying fund holdings when it re-opens.

This article is for information purposes only. It does not constitute investment advice and is not a recommendation for investment. The value of your investment and the income from them may go down as well as up and you could back less than you invested.

Date of publication: 7 June 2019

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