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Woodford Equity Income to be wound up

Tom Stevenson

Tom Stevenson - Investment Director

The LF Woodford Equity Income Fund, which is currently suspended, will not re-open as intended later this year. Instead, the fund’s authorised corporate director (ACD), Link Fund Solutions, announced today that it will wind the fund up in January with a view to returning cash to investors at the earliest opportunity.

Update: Further to the publication of this article, Link Fund Solutions have today (16 October 2019) confirmed that the LF Woodford Income Focus Fund has been suspended. This fund had already been closed for new investments on the Fidelity Personal Investing platform. Further information on all Woodford funds is available here.

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Woodford Investment Management, the company set up by former Invesco Perpetual manager Neil Woodford, will no longer be the manager of the fund and the name of the fund will change to the LF Equity Income Fund.

The fund was suspended in June after an increased level of redemptions as concerns mounted about the liquidity of the fund and the performance of a number of the fund’s stock picks.

In order to return the value of the fund’s assets to investors in an orderly way, its investments have been allocated by Link to two portfolios.

BlackRock has been appointed to dispose of the relatively easy-to-sell listed assets (Portfolio A), allowing some cash to be returned to investors soon after the winding up begins on 17 January 2020. It is anticipated that this initial payment will be made by the end of January 2020.

PJT Partners will help Link to sell the unlisted and some highly illiquid listed assets (Portfolio B). Proceeds from these disposals will fund any subsequent capital distributions, with no target disposal or distribution date to avoid a ‘fire sale’.

The winding up of the fund can only begin in January because FCA rules require three months’ notice be given to investors of a decision to wind up a fund.

The decision not to re-open the fund comes after Link failed to reposition the illiquid and unlisted investments into the more liquid investments that would have been required to meet expected redemptions after the fund re-opened.

Link said it had concluded that it is now in the best interests of investors for the fund to be wound up, although it could not say when the less liquid investments could be sold. As a result, the timing of capital distributions remains uncertain.

More details about how this news might affect your investments, and further updates, will be made available here.

In an environment of low interest rates, investors are naturally attracted to the income and growth potential of equity income funds. The UK market has traditionally been a good source of equity income thanks to the relatively high dividend yields paid by UK companies.

The Select 50 list of our preferred funds is a good starting point for investors looking to invest in this type of fund. There are three funds on the list with a UK income focus:

The Franklin UK Equity Income Fund specialises in large capitalisation UK shares, offering a mixture of defensive and more cyclical dividend payers. It balances its portfolio between stocks which pay a dividend yield at a sustainable premium to the market and those which offer a faster growth rate in the dividend.

The JOHCM UK Equity Income Fund has a focus on value stocks but will only invest in companies that the manager Clive Beagles believes can grow earnings and dividends over time. His starting point is companies expected to pay a higher yield than the market average in the year ahead.

The Fidelity Enhanced Income Fund aims to deliver a high and sustainable income, using a ‘covered call’ strategy to deliver income in excess of that naturally delivered by a portfolio of shares the manager Michael Clark considers safe and sensibly valued. He prefers undervalued, high-quality businesses with strong and growing dividends.

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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