Skip Header

Woodford: what went wrong?

Daniel Lane

Daniel Lane - Fidelity Personal Investing

It’s been hard to miss this morning’s news of famed stock picker Neil Woodford suspending dealing in his flagship LF Woodford Equity Income Fund.

Neil Woodford

The manager has had a tough time of it recently and, as followers of the saga have seen, investors unhappy with the fund’s performance have been taking their money elsewhere. Understandably, investors still in the fund will be asking how this happened and where it all goes from here, so here is a run-down of the situation. We have also compiled a list of Frequently Asked Questions  (FAQs) you can read here.

Why has the fund been suspended?

While the fund has seen noticeable outflows over the past month, more recent withdrawals have been particularly significant, with a redemption request from Kent County Council seemingly triggering the suspension.

Normally, fund houses can use cash buffers to meet outflows, or offset the sells against the buys, meaning the fund’s asset mix remains relatively stable. However, sizeable redemptions and a lack of money coming into the fund can mean the manager has to sell investments to meet withdrawals instead.

The problem here is that selling assets can exacerbate the problem especially, as Woodford has found, if some of the assets in question are unquoted companies and can’t be readily sold on the stock market.

Rather than continue a pattern of constantly selling assets to meet redemptions, it can help to have a bit of a breather to get the house in order, hence the suspension. Some commercial property funds were suspended in 2016 for exactly this reason.

What does this mean for investors in the fund?

It might seem counter-intuitive but suspensions are put in place to try and protect investors. Stymying any further activity for the time being can be useful in allowing management to steady the ship in terms of meeting withdrawals and addressing investors’ concerns head-on.

For any Fidelity investors in the fund, rest assured we will keep you up to date on what’s happening as the situation develops. My colleagues Ed Monk and Tom Stevenson have also written recently on why the fund has found itself facing these challenges, as well as some of the lessons we can learn from it all.

My immediate take away however, is one of diversification. It might seem obvious but it’s difficult not to highlight the benefits of a portfolio full of uncorrelated assets, funds, managers and strategies in a case like this. Not all investments should perform in line with each other and days like today are hard to predict; it’s about having an engine that can fire on at least some cylinders at any one time.

Keep up to date with the latest news here

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. Investors should note that the views expressed may no longer be current and may have already been acted upon. 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.