LF Woodford Equity Income to be suspended until December

Since the fund was suspended from trading on 3 June Link reviews whether to reopen it at least every 28 days. In an update on its second review, on 29 July, Link said: 

“We anticipate that the suspension of dealing is likely to last until early December while we implement the strategy to reposition the portfolio in order for the fund to be reopened at that time, which is conditional upon achieving the target fund profile. This is a realistic amount of time for Woodford Investment Management to complete a measured and orderly repositioning of the fund's assets, ensuring that there is adequate liquidity whilst preserving or realising the value of them. Importantly, [this will] allow all investors to choose whether they wish to remain invested in or to withdraw their investments from the fund. The work that is under way to reposition the [fund] is designed to ensure that there are liquid assets available for these purposes, while continuing with the objectives and investment strategy of the fund.”

A suspension of up to six months would be similar to the period of time commercial property funds were suspended in 2008 during the financial crisis and in 2016 after the UK’s vote to leave the European Union. In the latter case, many of the suspended funds reopened within a shorter time frame. For example, M&G Property Portfolio (GB00B89X8P64) was suspended from trading between 5 July and 4 November 2016, and Janus Henderson UK Property (GB00BP46GG64) was suspended from trading between 6 July and 30 September 2016.

Adrian Lowcock, head of personal investing at Willis Owen, said: “The suspension [of LF Woodford Equity Income is not a] surprise. It has taken Link a while to confirm that the suspension will last until December, but the investments in LF Woodford Equity Income fund are very illiquid and take time to sell, meaning that this was never likely to be a quick fix. It is important that this restructuring of the portfolio is comprehensive so investors are able to get their money back when the fund reopens."

Length of commercial property fund suspensions in 2016

Source: AJ Bell

Fund repositioning

Link also said that Woodford Investment Management had made progress in assessing the portfolio and making sales where reasonable prices could be achieved. “We have carefully considered Woodford Investment Management’s proposals in relation to the assets, including consulting with specialist professional advisers, so that we can be sure decisions are taken in the best interests of investors," said Link. "We will continue to monitor progress of the repositioning of the fund’s portfolio to ensure that it is on track and our aim of lifting the suspension in December remains achievable.”

Woodford Investment Management said that it has been selling assets out of the fund in a timely and orderly way through a variety of processes across a broad buyer base to ensure the best price can be obtained for them. The company said that Neil Woodford and his team have made progress in selling parts of the less liquid quoted exposure so that when the fund reopens its holdings will be much more liquid, and most will be FTSE 100 and FTSE 250 companies.

"80 per cent of the proceeds from share sales since suspension have been reinvested in FTSE 100 companies, but still reflecting the same investment strategy," said Mr Woodford. "That strategy is founded on a belief that the global economic environment is not as robust as equity markets are implying. Profit warnings have been a regular feature of the second quarter earnings season that recently commenced, and we would expect to see more of these, particularly from global-facing and industrial companies.

"We continue to focus the fund’s portfolio towards the few areas of the market which continue to offer valuation appeal and economic regions that appear to have enough internal momentum to withstand the growing global headwinds. This is resulting in a meaningful exposure to domestically focused businesses which I believe, even among the FTSE 100 and FTSE 250 constituents, represent the most attractively valued stocks in the investment universe.”

Mr Woodford did not say which shares this money has been put into, although investors may get some idea when the next fund factsheet is published in mid August. However, this will only show the top 10 holdings because since LF Woodford Equity Income was suspended from trading Woodford Investment Management has only published the 10 largest holdings for each of its funds – rather than the full list of holdings as it had done previously.

With regard to LF Woodford Equity Income’s performance, Mr Woodford said: "This strategy has not delivered the returns we had anticipated over the past couple of years, which is why the fund is in the situation it is today. The suspension itself did appear to have a further immediate impact on performance in the short term, but we are of the view that the worst is now past. The suspension and the circumstances that led to it may have had an impact on the price of some of the fund’s assets, but they have not had an impact on the value of those assets."

However, Ryan Hughes, head of active portfolios at broker AJ Bell, said: “The fact that Link Asset Services and Woodford Investment Management have given a timeframe suggests they have some confidence in the fund reopening in December, but this will still mark six months of fund suspension that investors have had to navigate. And, unfortunately, the performance figures don’t provide much of a boon for investors, with the fund down 3.3 per cent since it closed on 3 June, compared with the FTSE All Share index’s return of 5.3 per cent during that time. The past month has seen the fund rise by almost 1 per cent while the market has risen 1.8 per cent.”