Recent suspension of the Woodford Equity Income Fund highlights the importance of maintaining liquid assets in an open ended fund structure where investors are offered daily liquidity.
Fund Manager Woodford set up his own company in 2014 following his success at Invesco Perpetual. With a history of market- beating returns he became a ‘star’ fund manager and his new fund attracted significant investment.
In its first year, returns were circa 18%, compared with an average rise of only 2% on the London Stock Exchange at the time (according to BBC Business). However, over the past 3 years fund performance has been extremely poor, resulting in the fund returning just 0.36% since launch versus a near 30% rise on the FTSE All-Share index (FE Trustnet). Uncertainty over Brexit and sizeable investments in certain underperforming stocks, in particular Provident Financial, Kier and Purplebricks hit the fund badly. The fund also moved away from the makeup of a traditional Income fund of FTSE 100 stocks to include holdings of small unquoted companies.
Consequently, investors have pulled money out of this fund in significant amounts this year but due to the nature of the fund being made up of a proportion of less liquid assets, Woodford has been unable to sell enough stocks to pay investors back. This major liquidity mismatch prompted desperate measures. Since 3rd June purchases and redemptions in the Woodford Equity Income fund have been suspended - those still invested are therefore unable to get their money out until further notice.
Whilst these events are rare, they stress the importance, as part of a fund evaluation process, of understanding the make-up of a fund and in particular the liquidity of its assets. Relying on the reputation and past performance of a fund manager should not be a substitute.
SEWELLBRYDENGUNN HAS NO EXPOSURE TO THIS FUND NOR HAS IT RECOMMENDED OR SUPPORTED THIS FUND FOR INVESTMENT.
Past performance is no indication of future performance. The value of your investment and any income derived from it may go down as well as up and you may not get back the original amount invested. This information is for general discussion purposes only and does not constitute Advice and cannot be relied upon as a basis for any decision for action, transaction or inaction.