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Woodford Investment Management – Update

 

 

The absolute demise of Woodford Investment Management has developed at speed.  News has broken that Neil Woodford is to close Woodford Investment Management following removal from management of the Woodford Equity Income fund.

Attached is communication from Old Mutual Wealth Platform Managing Director – Scott Goodsir.  Click the link in the email to read the Investor Newsletter and Q&A –

https://equityincome.linkfundsolutions.co.uk/media/yr2dbqm2/15th-october-2019-investor-letter-regarding-the-winding-up-of-the-lf-woodford-equity-income-fund.pdf

https://equityincome.linkfundsolutions.co.uk/media/2lld5i41/q-a-in-relation-to-the-winding-up-of-the-lf-woodford-equity-income-fund.pdf

All platforms will be communicating the position.

The details and reasons for the demise will no doubt be a rolling subject for some time to come, especially when Neil Woodford was so successful for so long, riding the course of a 30 year plus economic environment.

Our clients can rest assured that our risk exposure across the various ‘Risk Model Portfolios’ has been low, ranging from 0.25% to 2%.  As an example, the holdings are as follows:-

Risk Model 3 holding      0.75%
Risk Model 4 holding      1%
Risk Model 5 holding      1.25%
Risk Model 6 holding      1.5%
Risk Model 7 holding      1.75%
Risk Model 8 holding      2%

so, any damage to the overall portfolio has been minimal but, of course, any failure (especially given Woodford’s long-term credentials) is concerning.

Our portfolio valuations had been based upon Woodford Equity Income fund at the point of fund suspension where it is speculated that a further fall of 20% of the fund values could develop during the unwinding of the fund.  Of course, this will depend upon gathering a fair market value, rather than the underlying assets being subjected to a ‘Fire Sale’.

 

 

What are the impacts in monetary terms?

 

 

Some clients have asked if we can explain in monetary terms what the financial impact could be ….?

This is difficult and hypothetical as the sale of the companies held in the Woodford Equity Income fund will be subject to ‘market conditions’ – some assets being illiquid, which escalated the issues, creating the demise of Woodford IM.

 

However, in order to provide an idea to investors based upon the ‘rumoured’ 20% fall in asset prices of the holdings since the fund was suspended, if an investor held £10,000 in the fund a 20% reduction would result in a fund wind up value being £8,000.  This is not what anyone had hoped for and is shocking, given the very long-term track record of Neil Woodford.

This must be taken and understood in the context of the portfolio where we are holding 50 funds, so as a portfolio the ‘pain’ is absorbed but as a fund in isolation there is no doubt ‘pain’.  The position/experience is certainly driving a Due Diligence update of all funds included (which we do regularly) as it will across the investment sector, for all advisory firms no doubt.

 

An important statement has been reinforced …. “past performance is no guide to future performance”.  The lesson of fund diversity is also essentially critical, along with asset allocation diversity in sector and geographies.

 

 

Our investment models are performing very well, on a risk adjusted basis, against relative benchmarks and peers although, of course, we would have much preferred to have been without exposure to Woodford IM, given the position.

 

(Neil Woodford and his sales team had done a big job of trying to attract an increased weighting to his funds around this time last year…. Using Neil Woodford’s powerful track record and conviction views.  We committed to holding the small percentage as a further diversifier to the sector and his economic vision but resisted increasing the weighting.  We are, of course, thankful of this decision at this point).  Click the link to read our coverage of the position:

 

https://www.bestpricefs.co.uk/blog/investment-market-overview/
https://www.bestpricefs.co.uk/blog/investment-views-update-from-woodford-asset-management/

The scale of Woodford’s demise is huge where the FCA must enforce regulations in relation to liquidity and such failings and what has been suggested as a failure to comply with ‘liquidity’ boundaries.

Click the link to read the Sky News article: https://apple.news/Aq6LS1BgsRo2CvFM_hO0h5w

 

 

Conclusion

 

 

It pains me (in some ways) to ‘pen’ that I have some sympathy with Woodford’s demise.  Neil Woodford had long term views – and always asked people to judge him on his long-term performance; but in the world of quarterly valuations his results were not holding up, so he struggled to attract new money and the illiquid holdings increased due to redemptions.

Neil relied on his long-term conviction to attract new money and deliver on his vision, which simply ran out of steam.

 

As an IFA, I have been a long-term supporter of Neil Woodford as an Asset Manager and for long periods holding as much as 10% of investors’ capital in the asset allocation which had delivered excellent results, so I am ‘somewhat pleased’ (I say this with trepidation!) with the exposure to the now failed asset manager, who was once seen as one of the World’s leading stock pickers.

Naturally, as we know the staff, our concerns are with them as we know they hold their pension and investment money in the ‘riskier’ Patient Capital Investment, which seems will be much more painful.

 

 

‘Wind up of the fund – Equity Income Fund’

 

 

It is likely to take some months before the capital is returned to platforms/investors as the process must be carried out in an orderly way.  Updates will be provided as they develop.

It is imperative that I communicate our deep thinking about all we do.  We/no one could see the failure of Woodford Investment Management coming, clearly this creates concern.

We are, however, extremely pleased with our delivery and performance of our risk models as portfolios.  We will be providing an update with performance to our clients which reads very pleasantly against benchmark results.

As always, if you have any questions, simply get in touch.

Best Regards.

 

 

 

Richard and the Best Price FS Team

 

 

 

 

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