A Star Is Shorn

A Star Is Shorn

over 4 years ago2 mins

The UK’s highest-profile investment manager completed his fall from grace on Tuesday as news broke that he’d been fired from his flagship fund (which would ironically, be liquidated) and shutting down his company 😭

What's going on here?

Back in June, Neil Woodford – a popular “active” manager attempting to deliver his investors market-beating returns – froze their ability to withdraw money from the Woodford Equity Income Fund. Investors had been pulling their cash for 22 straight months due to disappointing performance, and a downgraded rating from research firm Morningstarwas the final straw.

Woodford was forced to freeze withdrawals due to “liquidity” issues: a significant proportion of the fund was invested in shares which were rarely traded, and which therefore couldn’t be easily sold to satisfy investors’ growing clamor for their cash back. The result was a mini-crisis as investors grew nervy about other illiquid funds – like those managed by French bank Natixis’s investment arm H2O.

Woodford’s fund included several illiquid stocks (Source: The Times)
Woodford’s fund included several illiquid stocks (Source: The Times)

Woodford’s fund had been due to reopen in December. Now, however, its administrators have abandoned a relaunch. The fund’s investments will instead be sold, with the money raised distributed to investors from January. But with the value of those investments having fallen 20% since June, many will get back less than they put in 😔

Why should I care?

The “winding-up” decision was largely unexpected, prompting shares of Woodford’s other UK-listed fund, Woodford Patient Capital, to fall 9% on Tuesday. Woodford’s Income Focus Fund was also suspended on Wednesday, causing further turmoil.

The news has broader implications for the investment industry. Broker Hargreaves Lansdown, which plugged Woodford’s fund to its customers, may yet face tough questions, while UK financial regulators are reassessing their rules regarding risky illiquid stocks and bonds.

Article Image

Woodford’s demise, importantly, adds fuel to the fire of the “active” versus “passive” investment management debate. Check out Finimize Packs for more on that…

Enjoyed this subscriber-only story? We’d love some feedback 🙏



All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG