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Investors pull £160m from Woodford after share swap

Investor exodus from Woodford Equity Income spikes to a six-month high in March after fund’s controversial share swap with Woodford Patient Capital Trust

Investors pull £160m from Woodford after share swap

Investor withdrawals from Woodford Equity Income fund spiked last month, jumping to a six-month high of £160 million after its controversial share swap with Woodford Patient Capital Trust (WPCT).

The redemptions in March further reduced Woodford’s flagship fund’s size to £4.4 billion, according to data from Lipper, compared to its £10 billion peak in mid-2017.

Until last month, outflows had generally declined (see chart) from the height of the investor exodus in May last year when £246 million was pulled from investors alarmed at its deteriorating performance. They reached a low of £65 million in January.

The increased withdrawals are in part likely to be the result of publicity surrounding the £79 million transaction between Woodford’s two funds, although they could also reflect normal end-of-tax-year rebalancing by investors as they assess the fund’s performance and prospects.

The share swap raised concerns about corporate governance after the income fund took a 13% hit on stakes in five unquoted companies by selling them for a 9% holding in WPCT, whose shares trade at a wide discount below net asset value.

The latest withdrawals underline the difficulties faced by Woodford as he battles to keep the level of illiquid, unquoted companies below the 10% regulatory limit as the fund shrinks.

As revealed by Citywire last week, Woodford had to resort to listing his stakes in companies such as Benevolent AI, a 4% holding, on the Guernsey stock exchange in order to take them out of the unquoted category, which it says stood at 7.8% at the end of February.

This week the embattled fund manager got good news when it was reported that Oxford Nanopore, the maker of portable gene sequencers, was preparing to float in the next 12 months. If true, that commitment means the company – in which the fund held 2.4% or £112 million of its assets at the end of February, its 12th biggest position – can also be recategorised as ‘quoted’.

After last month’s outflows that would further cut the fund’s exposure to private, unlisted stocks to 5.4%.

After the transaction in March, Citywire calculated the fund held nearly 18% of its assets in unquoted stocks, if one disregarded the exemption around soon-to-be-listed companies.

More than any other fund manager, Woodford (pictured) desperately needs a post-Brexit bounce in markets to improve performance and help stabilise the equity income fund.

For most of his long career at Invesco and his own firm, the manager was feted as a star investor. However, stock selection and asset allocation have hurt his performance in the last two years, with the manager last receiving a Citywire rating in August 2017.

Last month, in an angry interview with the Financial Times, he admitted the fund might have to close in the next two years if outflows continue at their high level.

At the end of February the equity income fund had fallen 6% over one year and ranked near the bottom of the UK Equity Income sector. The figures are the same over three years with the fund’s decline comparing poorly to the average 17.6% gain of funds in the sector.

The portfolio has a big exposure to house builders, such as Barratt Developments, its biggest holding at over 7% of assets. It is also heavily weighted to other domestic stocks in building materials, financials, outsourcers, logistics, media and property.

Woodford believes these have been excessively marked down since the Brexit vote cast a dark shadow over the UK economy. With the global economy looking vulnerable as China slows and US tax cuts wear off, Woodford regards the UK as a ‘bright spot’ in the world.

In a statement he sought to reassure his remaining investors: ‘I remain focused on capturing the opportunity that exists in parts of the market that have been left behind since we voted to leave the EU two and half years ago.’

He added: ’Crucially, the portfolio is positioned how I want it to be and is completely focused on a valuation opportunity, the likes of which I haven't seen for 30 years.’ 

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