Assets in the Woodford equity income fund, managed by Neil Woodford, a fund manager with more than 25 years of experience, has contracted by £560m in less than four weeks to £3.77bn this week from £4.33bn in April, as the struggles for the stock picker show little sign of abating. Investors have been abandoning the UK’s best-known portfolio manager following a continued period of weak performance; the latest figures as reported by analysts reflects a roughly two-thirds drop from its £10.2bn peak two years ago. The accelerating decline in Woodford’s flagship investment fund has caused concerns amongst some senior investment industry executives. The industry is worried about the outlook of one of the best-known names in the country’s fund management business.
The weak trading performance of the fund’s underlying investment portfolio accounts for about £373m of the monthly decline, with the rest £187m coming from investors’ redemptions since the end of April. In May, the long-term focused fund suffered a 23rd consecutive month of withdrawal. It has been shrinking by an average of £10m every business day for the last 23 months. Data reveals that the withdrawal of £187m was more than the £126.2m registered in April.
More recently, the 59-year-old has suffered poor returns following a series of bad investment calls, with Woodford Equity Income down by 8.3% in May, underperforming the FTSE All-Share index which declined by 2.5% in May. The regulatory imposed limit of 10 per cent invested in unlisted stocks is proving problematic for Mr Woodford as investors redemption has made his task of adhering to that limit difficult. This would force to devise more creative ways to rebalance his portfolio, including listing some stakes in companies, as these illiquid assets are harder to sell than listed equities.
The fund manager is under further pressure from many of his large institutional investor backers. Last week St James’s Place, the insurance company for which Woodford manages around a third of his total £10bn of assets under management, told it was closely scrutinising the performance of the fund, following a worsening performance which had led to requests from customers to move out of his funds. Kent County Council, which has had a relationship with Neil Woodford for a long time and backed the fund manager for over a decade, said it would reconsider the relationship in a meeting on June 21 after keeping the fund under review. Moreover, recently some analysts announced that they had downgraded the rating of Equity Income Fund to neutral from bronze, giving it the second lowest rating.
The Financial Conduct Authority (FCA) is examining the fund to ensure enough cash is available to pay those who decide to leave, but it has not been in direct contact with the investment manager. In an interview to a newspaper, Mr Woodford admitted that if he failed to stem investor withdrawals, his fund would not survive in about two-and-a-half years. The fund’s spokesperson said that Mr Woodford believed that sectors such as housebuilders and other consumer stocks still offer growth potential in the long-run, but UK-quoted domestic stocks have contributed to the fund’s underperformance over the past month. One fund industry observer said that the problem seemed more likely to be limited to one particular problematic fund and is not yet contagion.