Woodford Equity Income Fund Suspends Trading

[Avantegarde]

Actually, it seems Woodword has announced this evening that he is closing down his investment management firm entirely, and relinquishing the investment business of both the Patient Capital investment trust and the Income Focus unit trust.

[Avantegarde]

Actually, it seems Woodword has announced this evening that he is closing down his investment management firm entirely, and relinquishing the investment business of both the Patient Capital investment trust and the Income Focus unit trust.

Sorry, Woodford not Woodword.

[JoyofBricks8]

In some ways the timing is odd: Brexit is looming and might have helped out with some of his underwater positions. That said, the thing that has really sunk him is buying too much unquoted stuff in an open ended fund, and then getting a run of bad active share picks that reduced his room to manoeuvre.

I don’t think he has broken any rules, just taken on too much unrewarded risk.

[JoyofBricks8]

Tom Winnifrith was quite prescient here:

https://youtu.be/d5fDb58cQwo

Having watched it, I think Mr Woodford might yet have some awkward questions to answer regarding transfer valuations.

[BrummieDave]

Thanks RVF. I too am watching from the sidelines.

Dod

I’ve been using the app/broker Freetrade to dabble in Patient Capital. £50 here, £100 there, it has been quite fun. (the only costs are stamp duty) Without checking, I think my first purchase was at roughly the price of NAV now.

I have been watching too, like many of us, not being involved as an investor at all.

But if the WPCT share price dips to around the 30p mark on further bad news, I will very likely go in heavy, because if this IT is taken over or wound up, it will be at or near 'real' NAV, which I don't think will be far from the 45p mark. This would be an 18 months max type punt.

I have had good results in the past, and of course the odd near disaster(eased by putting in a suitable stop loss), with bottom fishing in few windup situations.

Bagger

It's 32p today.

Have you (or anyone else) bought any?

[funduffer]

My opinion is that high return corresponds with high risk, furthermore the picks were well off the efficient frontier, and in an area he was unfamiliar with, and high fees were being charged.

Provided the taxpayer does not step in to pick up the bill then hopefully it is a salutary lesson for the general public.

I have been a long term investor in Woodford. I first invested in his Invesco Perpetual Income fund and made 125% over 10 years (2003-2012).

So when he set up his new company, I invested in his Woodford Equity Income fund.

With all income re-invested, I am currently 15% down on my original investment in 2014 (-3.8% annualised return).

What I will get back, I have no idea, as the latest letter from Link suggests the fund wind-up will be a lengthy process, and I will see what is left returned in dribs and drabs.

Since 2014, I have come to learn that passive investing and low cost active investing (IT's and shares) are a better way to go. So it is indeed a salutary lesson to me that someone with the experience and track record of Neil Woodford can go so badly wrong.

Never again an active unit trust for me. Now, I will stick to low cost IT's, trackers and my small HYP portfolio.

Luckily, the Woodford fund constitutes <3% of my portfolio.

FD

[Pipsmum]

As an investor of his Income Focus... sadly was still believing that this was going to turn a corner eventually but now it doesn't seem as if it is going to be allowed to. I invested in it regularly for the income long term.

Even more unfortunately I persuaded my then 22 year old son that investing in a long term managed share fund was a good idea as a first investment rather than choose separate shares, so he invested £1000 in it. A very sad tale for a first investor. He will probably never trust investments again.

What I fail to understand is that nobody investing in shares just 'gives up' when they hit a low point unless the company actually caves in. Why then are HL electing to let that happen rather than just appoint a new manager and wait for these shares to return upwards eventually. All investors were made aware of what they were investing in by the published list.

I don't want to sell at a spectacular loss and would rather have waited for better times, but obviously are not going to get that choice.

[monabri]

Luckily, the Woodford fund constitutes <3% of my portfolio.
FD

From the D Telegraph

https://www.telegraph.co.uk/investing/f ... e-savings/

"One Telegraph Money reader from Cheltenham, who asked not to be named, has £700,000 tied up in Woodford funds – roughly 70pc of his pension savings. Around £620,000 of this is invested in Equity Income, which has been taken over by an interim manager trusted with the task of selling off assets and redeeming investors in the new year."

[Dod101]

As an investor of his Income Focus... sadly was still believing that this was going to turn a corner eventually but now it doesn't seem as if it is going to be allowed to. I invested in it regularly for the income long term.

Even more unfortunately I persuaded my then 22 year old son that investing in a long term managed share fund was a good idea as a first investment rather than choose separate shares, so he invested £1000 in it. A very sad tale for a first investor. He will probably never trust investments again.

What I fail to understand is that nobody investing in shares just 'gives up' when they hit a low point unless the company actually caves in. Why then are HL electing to let that happen rather than just appoint a new manager and wait for these shares to return upwards eventually. All investors were made aware of what they were investing in by the published list.

I don't want to sell at a spectacular loss and would rather have waited for better times, but obviously are not going to get that choice.

I do not understand and may well have got the wrong end of the stick but although I am sorry for all investors in Woodford funds, at the same time, how could it possibly be an income fund when so much was apparently in unquoted start ups?

You mention HL. Presumably Hargreaves Lansdowne since the letters do not seem to fit anyone else. As far as I know HL are not electing to let the company cave in. It is not a company anyway; it is a sort of mutual fund. The point of course was that Link saw that it was going to take a lot longer than anticipated to get the fund into a state when it could safely be reopened, if ever. There were almost bound to be a rash of redemption applications and it might be that they could not fulfil them yet again. They decided that it was better to share out the proceeds proportionally by an orderly liquidation and that is what is going to happen.

If I have got Pipsmum wrong then my apologies.

Dod

[AsleepInYorkshire]

16th October 2019
Neil Woodford closes crisis-hit investment empire
https://www.bbc.co.uk/news/business-50061968

The UK's best-known stockpicker is to quit his remaining investment funds, signalling the end of his multi-billion-pound empire.

I don't have any holdings in Woodford funds. I'd like to caveat that I am genuinely sad and sorry for those who have lost money because of these events.

I could pick out certain comments Woodford has made. I'm not going to though. This individual needs to be brought before his piers. He's made money whilst exposing funds under his control to risks far beyond his legal remit.

Sorry isn't good enough. Woodford knowingly behaved outside of the funds legal remit. He took risks that were not his to take. I'd like to see him brought to task and his private assets seized and used in part to remedy his illegal exploits.

AiY

[LooseCannon101]

St. James Place and Hargreaves Lansdowne also profited by encouraging their clients to put money into Woodford's funds. What due diligence was carried out? If none, should their opinion be trusted?

Everyone seems to have won except the unsuspecting retail investor - fleeced by all these institutions.

[UncleEbenezer]

do not understand and may well have got the wrong end of the stick but although I am sorry for all investors in Woodford funds, at the same time, how could it possibly be an income fund when so much was apparently in unquoted start ups?
Dod

We have a whole sector doing exactly that. VCTs invest in unquoted companies; most VCTs distribute high income[1] with the greater part coming from capital.

Indeed, a VCT manager - especially one of the VCT houses with a track record of taking over failing VCTs and salvaging what's left - would seem the ideal custodian for whatever remains of WPCT.

[1] OK, that's largely driven by tax: when divis are tax-free and discounts take the shine off capital values, large divis become all the more attractive.

[AsleepInYorkshire]

St. James Place and Hargreaves Lansdowne also profited by encouraging their clients to put money into Woodford's funds. What due diligence was carried out? If none, should their opinion be trusted?

Everyone seems to have won except the unsuspecting retail investor - fleeced by all these institutions.

Yes. Great point.

AiY

[Howard]

St. James Place and Hargreaves Lansdowne also profited by encouraging their clients to put money into Woodford's funds. What due diligence was carried out? If none, should their opinion be trusted?

Everyone seems to have won except the unsuspecting retail investor - fleeced by all these institutions.

Are you sure about St James' Place?

As I understand it they employ fund managers to run specific portfolios for them. As soon as the problems occurred with Woodford they replaced him with another manager. So there was little/no impact on their income fund's performance.

The HL situation was completely different as they recommended investing in Woodford's own fund.

(I don't invest with St James' Place, others who do might comment further).

regards

Howard

[Alaric]

Are you sure about St James' Place?

As I understand it they employ fund managers to run specific portfolios for them. As soon as the problems occurred with Woodford they replaced him with another manager. So there was little/no impact on their income fund's performance.

A contemporary new report confirms this.
https://citywire.co.uk/funds-insider/ne ... s/a1236130

It does however also say

As with Woodford's flagship Woodford Equity Income fund, performance of the manager's St James's Place funds has deteriorated markedly over the last two years.

The St James's Place UK High Income fund is down 17% over the last 24 months. Although the fund sits outside the Investment Association sectors, that performance would place it in the lower reaches of the UK All Companies sector.

but also notes

His flagship, suspended fund features a sizeable allocation to unquoted companies, but they do not feature in the funds he has run for the national financial advice group, which in 2014 limited the UK companies he could buy to FTSE 100 and FTSE 250 stocks.

[Dod101]

do not understand and may well have got the wrong end of the stick but although I am sorry for all investors in Woodford funds, at the same time, how could it possibly be an income fund when so much was apparently in unquoted start ups?
Dod

We have a whole sector doing exactly that. VCTs invest in unquoted companies; most VCTs distribute high income[1] with the greater part coming from capital.

Indeed, a VCT manager - especially one of the VCT houses with a track record of taking over failing VCTs and salvaging what's left - would seem the ideal custodian for whatever remains of WPCT.

[1] OK, that's largely driven by tax: when divis are tax-free and discounts take the shine off capital values, large divis become all the more attractive.

There is no comparison though between VCT's and the supposed expertise of Woodford. People are aware that most VCT's are high risk, high return and as far as we know Woodford had no special expertise (or aspiration) in distributing capital profits (even were it allowed of OEICs) Woodford was a conventional although highly successful stockpicker when he was at Invesco and it was that expertise that I am sure that Pipsmum and the like thought that they were investing in, so with respect, I think that UE's comments are irrelevant to this discussion. They will certainly bring no comfort to those left holding the baby at LF Equity Income Fund.

Dod

[Dod101]

St. James Place and Hargreaves Lansdowne also profited by encouraging their clients to put money into Woodford's funds. What due diligence was carried out? If none, should their opinion be trusted?

Everyone seems to have won except the unsuspecting retail investor - fleeced by all these institutions.

On 15 October I quoted monabri who helpfully quoted HL and how they assessed Woodford. They are not allowed to recommend or at least give investment advice and I struggle to see the difference. They were pushing his funds right up to the point just before the fund was closed. Given their influence in the market they must surely accept some blame not for Woodford's actions but certainly for unduly influencing investors. Even some on this Board invested in him and we probably represent the better informed members of the investing community.

Dod

[88V8]

My takeaway from the Woodford debacle - not invested, tbank goodness - is that when a celebrity manager jumps ship to start up their own fund, one should give them a good ignoring.
There's a world of difference between managing a fund that has grown over many years, and having to invest a huge pot of money NOW.

V8

[scotia]

Woodford made his name at Invesco Perpetual with Income funds that were weighed strongly towards tobacco and pharmaceuticals - and for a significant period this was successful. But in his final five years this approach started to fail - and he performed poorly. So he thought that a new approach was necessary, and rather than try to re-jig his huge funds, he started anew, with oceans of cash from investors who thought that he could do no wrong. But as Anthony Bolton (of Fidelity) said - there is a lot of luck involved in being a successful fund manager. And luck seemed to desert Woodford in several mainstream investments, while his forays into start-ups, where he lacked any knowledge (Cold Fusion!!!) were disastrous. In his defence, he needed to invest large amounts of money in a short timescale, and he probably felt that continuing subscriptions to his funds would allow him freedom to engage in speculative ventures that may turn out to be multi-bagger winners in the long term. But when performance dropped, and the critics pointed to several (mainstream) failures, then significant outflows resulted, and illiquidity of his start-ups created significant problems - hence the current state of affairs.
I would guess that if the stock market had been a bit more kind to some of Woodfords mainstream picks, then the outflows would not have been so significant (about 70% ?) and the disastrous illiquidity of his start-ups would have remained hidden. Lady luck is a fickle mistress.

[toofast2live]

Precisely why you should diversify even if holding income funds