Link Fund Solutions Limited, the Authorised Corporate Director of the LF Woodford Equity Income Fund (“the fund”) has formally reviewed the suspension and announced that it remains in the best interests of investors for the suspension to continue and that the suspension of dealing is likely to last until early December.
The decision to continue with the suspension of investor dealing in the fund is to ensure investors’ interests are protected. It affords Neil and the team the required time to execute the changes to the portfolio that we have outlined previously, in order to deliver the best possible outcomes for you, our investors.
When the fund reopens, you will see a much more liquid portfolio, but one that reflects the same investment strategy. The portfolio will continue to be focused on undervalued companies, but the majority of them will be FTSE 100 and FTSE 250 index constituents.
It is important to note that, because the fund is suspended, there are no redemptions and the Woodford team is not forced to sell assets at distressed prices. During the closed period, we will be selling these assets in a timely and orderly way through a variety of processes across a broad buyer base to ensure the best price can be obtained for the assets, and the best interests of investors are upheld.
In March 2019, we had already announced our intention to implement a shift within the fund’s portfolio, away from unquoted holdings (private companies), towards a portfolio consisting of larger, more liquid stocks. Neil and the team have already made positive progress in selling parts of the less liquid quoted exposure from the portfolio.
The primary focus is on maximising value and delivering the best outcomes for Equity Income Fund investors and a number of options are being pursued to achieve this. It is important to reiterate that Woodford Patient Capital Trust’s strategy is unaffected, and it remains a long-term investor in the companies in its portfolio.
The suspension will be lifted when the fund’s repositioning is complete, with less exposure to illiquid stocks. Until then, we are committed to operating the fund in a way that continues to protect the value of your savings, both for those who wish to remain invested and for others who will seek to withdraw from the fund.
Statement from Neil
In discussion with Link, we can now confirm that we anticipate the fund re-opening in early December as we navigate through the changes to the portfolio previously articulated.
I understand the frustration, inconvenience and anxiety the continued suspension of the fund will be causing you and I am extremely sorry for putting you in this situation. Since our last update a month ago, we have made progress with our strategy to reduce our exposure to unquoted and less liquid stocks with our primary focus being on delivering the best possible outcomes for investors in the fund.
We commenced the process of reducing the fund’s exposure to unquoted and less liquid assets in February. I’m afraid we cannot share details of exactly what has changed with you just yet.
What you will see when the fund re-opens, is a portfolio with more FTSE 100 and FTSE 250 companies (80% of the proceeds from share sales since suspension have been reinvested in FTSE 100 companies), but still reflecting the same investment strategy. To reiterate, that strategy is founded on a belief that the global economic environment is not as robust as equity markets are implying.
Macroeconomic data is increasingly supportive of this thesis, with growth starting to falter in the US, parts of Europe barely growing at all, and further evidence of problems in emerging market economies. Profit warnings have been a regular feature of the second quarter earnings season that recently commenced, and we would expect to see more of these, particularly from global-facing and industrial companies.
We will continue to focus the fund’s portfolio towards the few areas of the market which continue to offer valuation appeal and to the economic regions that appear to have enough internal momentum to withstand the growing global headwinds. This results in a meaningful exposure to domestically-focused businesses which I believe, even among the FTSE 100 and FTSE 250 constituents, represent the most attractively valued stocks in the investment universe.
Admittedly, this strategy has not delivered the returns we had anticipated over the past couple of years which is why the fund is in the situation it is today. The suspension itself did appear to have had a further immediate impact on performance in the short term, but we are of the view that the worst is now past. The suspension and the circumstances that led to it, may have had an impact on the price of some of the fund’s assets, but they have not had an impact on the value of those assets.
Identifying situations where price and value diverge has been at the centre of my disciplined investment approach for more than thirty years, and is still determining an investment strategy that I believe is appropriate for the economic and market environment that confronts us.
Thank you for your patience.