Neil Woodford fund: investors still await final payout

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One year on from the suspension of Neil Woodford’s flagship Equity Income fund, more than 300,000 investors are still waiting for their final payout as the pandemic stretches out the liquidation process.

Withdrawals were halted on the fund on June 3 last year, trapping nearly £3bn of investors’ money. By October, the decision was taken to liquidate the fund and return the proceeds to investors — a process that began in January, but is still continuing.

As they count their losses, investors who were attracted by the regular income stream the fund produced are finding it impossible to replicate as the pandemic causes companies to halt dividend payments.

“I’m disappointed by the whole thing and I’m not sure that shutting it down and handing it to someone else to liquidate was the right thing to do,” said Woodford investor and FT Money reader Nicholas Tett.

To date, some £2.3bn has been paid out to investors, but the fund’s unlisted assets — the source of its liquidity problems — are still proving difficult to sell.

The remaining stakes in unquoted companies were valued at £558m on May 20, and have risen in value by 2.3 per cent since March 25 when the last distribution was made. The FTSE All-Share is up just under 10 per cent over the same period.

However, analysts believe the pandemic will complicate the sales process. “It’s a buyers’ market,” said Ryan Hughes, head of active portfolios at broker AJ Bell, adding that the final payout would probably take longer and result in significantly lower sale prices.

Link Fund Solutions, the Woodford fund’s administrator, has not announced when investors can expect to receive a final payout. Link said in a statement: “Every decision taken is to ensure the best interests of investors are served.”

Ironically, the cash payouts investors received from Link in January and March could have protected investors from the worst of the market falls caused by Covid-19.

“Having cash at that moment turned out not to be a bad thing,” added Mr Tett.

However, income-seeking investors are finding it difficult to decide where to deploy their cash.

“The collapse in value investing has been so extreme,” said Elizabeth Balsom, an investor who had money trapped in the Equity Income fund when it was suspended.

“Cash pays zilch. Companies are slashing dividends. You try to spread your risk and have a variety of investments, but still you feel battered at every turn.”

This year, unsettled by her Woodford losses and recent market volatility, she said she had left her annual Isa allowance of £20,000 in cash. “I feel a bit paralysed,” she said. “You think, where can I invest that’s safe?”

Hargreaves Lansdown, the UK’s largest investment platform, came under fire for promoting the Woodford fund and featuring it on its “Wealth 50” list of recommended funds until the moment it was suspended.

“About 15 per cent of all our transfers are from Hargreaves Lansdown,” said Richard Wilson, chief executive of rival platform Interactive Investor. However, he said some customers were finding the transfer process had been complicated by the use of a special share class that enabled Hargreaves to offer the Woodford fund at a small discount.

Hargreaves Lansdown declined to comment on the number of customers who had left the platform in the wake of the scandal. Danny Cox, head of communications at Hargreaves said: “We share investors’ disappointment and frustration and are pleased that the majority of money has now been returned from the fund. In the last few months, we have been working hard behind the scenes to improve and evolve our tools and services.”

Following the Equity Income fund’s poor performance and suspension, investor frustration was compounded by Mr Woodford’s refusal to waive management fees. Investors also resented paying further fees for the fund’s assets to be liquidated.

A year on from the suspension, experts said there were still lessons to be learned from the fund’s collapse.

“[Always] look beneath the bonnet of the fund,” Mr Hughes advised investors. “There was actually no secret about what was held in the fund, Woodford published a list of the holdings every day. Make sure you understand what you’re buying.”

Mr Wilson warned of the allure of a big-name manger. “Egos do not in general make for sustained and sustainable good decision making,” he said, adding that investors should think twice about buying “any fund named after its manager”.

Despite his losses, Mr Tett said he still believed in Mr Woodford’s style of investing. “I liked the way he would, on the whole, go for undervalued companies in undervalued sectors,” he said. “I’m investing in funds that do somewhat similar things and [have a] somewhat similar philosophy to Woodford. It hasn’t made me more cautious.”

However he said he would no longer invest in a fund that claimed both to pay income as well as invest in small, illiquid UK companies. “Ten years ago I thought it was a great idea but in the end, it was the death of the fund.”

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