Gee and Watson

At the start of June 2019, a temporary suspension was placed on the Woodford Equity Income fund.  Whilst the fund remains suspended, monies can neither be added to or withdrawn from it.  Since the beginning of June, we have witnessed a level of media coverage never previously seen regarding a single fund/fund manager, although we cannot recall an equity fund ever having been suspended in such a way.

We understand that this event, together with some of the particularly aggressive negativity in the media, will have concerned some of our clients, and it is, therefore, important to be able to understand what has happened to date, as well as the future prospects for the fund.

  1. We have utilised this fund as a component part of some of the diverse portfolios which we have successfully run for over ten years; an event such as this is a perfect example of why we endeavour to achieve such a high degree of diversification within these portfolios.

  2. The fund largely invests in the UK ‘domestic economy’, which is an area that has seen much volatility, against a backdrop of uncertainty, since 2016. We believe that the underlying price of company shares in this sector is not unattractive, and the recent problems regarding the Woodford fund have not changed this view.

  3. The value of the Woodford fund will depend on the share prices of the companies in which it invests, and they can go up as well as down.

  4. The recent problems with this fund have been very much regarding liquidity, with several sizeable requested redemptions leading to the suspension, as the managers felt that to meet these redemptions would disadvantage the remaining investors. This is due to the fact that approximately 10% of the fund is invested in unquoted (and, therefore, less ‘liquid’) holdings, which are not as easy to sell as, say, the underlying shares of a FTSE 100 company.

  5. It had been announced earlier this year that these unquoted investments would ultimately be sold to improve liquidity, and whilst the fund is suspended these sales will be prioritised, with the monies being reinvested in more liquid investments.

  6. The initial suspension was for a 28 day period; however, we anticipate that the fund will remain suspended for at least 3 months. It should be noted that the decision to re-open the fund will be made by Woodford Investment Management, in conjunction with the Regulators, and this will not happen until it is believed that the fund will be able to cope with the redemptions, which will inevitably be requested.

  7. We will continue to monitor the situation closely, and to remain in close contact with Woodford Investment Management. A corporate decision will ultimately be made regarding our continued use of the fund, although it is still too early to make such a definitive decision.

Neil Woodford has recently released a statement on this issue which can be accessed by clicking on the link below:

Woodford Letter To Investors 11th June 2019 (PDF)

 Should you have any queries please do not hesitate to contact your usual adviser.

 

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