City thinking, local knowledge

A note on the LF Woodford Equity Income Fund

By Questa Chartered

You may have read about the suspension of the LF Woodford Equity Income Fund. Since the announcement, we have had a one-to-one meeting with Neil Woodford to understand the reasons behind him making this decision.

Why has the fund been suspended?

As you may be aware, Neil Woodford has a very good, long-term track record in investing. Since its launch, the Woodford Equity Fund was among the top performers in the sector. It was only at the end of 2016 the fund started to underperform.

We had seen the fund manager displaying similar underperformance in 1999, which bounced back strongly in 2003 and again underperformed in 2009, rising strongly to 2016. As such, he had shown the capability to do the same again.

The fund manager has a history of successfully investing in small and/or unquoted stocks through his time at Woodford Investment Management, and previously at Invesco Perpetual. However, during 2018, withdrawals from the fund began to increase due to its underperformance. This resulted in the manager selling the more tradable stocks to meet investors demand and was therefore unable to reduce the unquoted portion of the portfolio quickly.

The pressure continued to build and after Kent County Council requested the withdrawal of £260 million. Following this request, the decision was made to suspend the fund so that the portfolio could be restructured whilst protecting existing investors.

Neil Woodford commented:-

“The suspension affords me time and space to execute this in a way that ensures I can achieve the best possible outcomes for you, our investors”.

Next steps

Since the announcement, we have been undertaking further research into the reasons behind the suspension. A further announcement was made recently to extend the suspension whilst the fund is being restructured. We continue to monitor developments very closely and are in continued talks with Neil and his team.

For those clients who are invested in this fund, it is important to note that it will be just one of many within a well structured and diversified investment portfolio, built to help meet your investment goals and objectives over the medium to long term. Our philosophy is and has always been not to hold all of your eggs in one basket!

If you have any questions relating to this do not hesitate to get in touch.

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