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Payback revealed for trapped investors in Woodford fund

“However, while this payment of the first tranche of the liquidated assets will be a relief for thousands of investors who have been trapped in the fund since June last year, there is still huge uncertainty around the money still stuck in illiquid assets”

Cash

Roughly half a million private investors are being told how much money they will get back on Thursday from the winding up the flagship fund of Neil Woodford’s ruined empire.

Investors had their dwindling investment locked in, after Neil Woodford’s principal investment fund, now renamed the LF Equity Income fund, was gated in last June on the back of several months of serious underperformance.

On Tuesday, the fund’s corporate director, Link Fund Solutions, laid out how much each class of share will receive on Thursday as part of the first capital distribution, which was pushed back from earlier in the month.

The payments represent just over 70% of the current fund value and has been raised from the sale of the liquid elements of the portfolio such as large- and mid-cap equities.

The size of the capital distribution varies from 58.9936p per share for the ‘Z sterling accumulation’ share class and 58.6631p for the ‘C sterling accumulation’ class, down to 46.3633p and 46.4091p for the ‘F sterling accumulation’ and ‘X sterling income’ classes.

Link said it will explain how the first capital distributions were calculated and provide an update in relation to other matters concerning the winding up of the Fund.

Ryan Hughes, head of active portfolios at AJ Bell, said: “In some respects, today represents the first day of closure for investors who have suffered from the terrible performance of the Woodford Equity Income fund. 

“However, while this payment of the first tranche of the liquidated assets will be a relief for thousands of investors who have been trapped in the fund since June last year, there is still huge uncertainty around the money still stuck in illiquid assets.”

With the initial distribution coming from the “easy bit” of selling more liquid assets, Hughes said investors should be aware that a large portion of their investment still remains trapped in the illiquid holdings that Park Hill manager of the unlisted portfolio is trying to sell. 

“For Park Hill, it is a hugely challenging task to sell the illiquid holdings in a timely fashion and investors still remain in the dark as to how long they will have to wait for the remainder of their money, and importantly, how much they are actually likely to get back.”

Adrian Lowcock, head of personal investing at Willis Owen, said because the illiquid assets are hard to sell and to get the best price possible “there needs to be some privacy which leaves investors in the dark about the remaining amount”.

He said the administrators are likely to avoid making too many small payments as there will be a cost to do so, as well as ensuring they have the cash to pay the administration and wind-up fees.

“The longer it goes on the more the fees will eat into any remaining value and the less investors will get back. It is unlikely that the group will not be able sell the remaining investments unless one of those goes into administration itself. But the price might be very unpleasant.”

Investors' next steps

He added that while retail investors will naturally be disappointed with the whole affair and might want to take the cash and run, he urged those who don’t need the money immediately to “take time to think about their next steps and what they want the money to do for them”.

Taking up this point, Dzmitry Lipski, head of funds research at Interactive investor, said: “This will have been a painful lesson in the importance of diversification for some investors, and once bitten, twice shy is a natural instinct.

He said ex Woodford customer should ask themselves why they invested in the fund in the first place.

“Was it because Woodford enjoyed celebrity status for the exemplary performance of funds under his stewardship during his tenure at Invesco Perpetual? If so, the fate of Woodford’s flagship fund and, more broadly, his investment empire is a timely reminder that rising stars can indeed fall.

“The experiences of trapped investors of the Woodford Equity Income Fund could sour appetite for actively managed funds in favour of passive solutions.

“Whilst we think the case for good quality active managers remains strong, there’s a place for good passive options too. And it is certainly a better option than taking fright from fund managers altogether.”

However, he said a good approach would be to use a blend of both active and passive funds as a means of portfolio diversification.

“Investors of Woodford Equity Income should also consider whether income was their primary goal,” Lipski added. “The fund’s name was somewhat of a misnomer.

“Although it did offer an income, the fund placed a greater emphasis on long-term total returns, and Woodford was willing to relinquish some income to meet this objective - so much so that the fund fell out of the Investment Association’s UK Equity Income sector in early 2018 because it yielded a little less than the UK stock market on average.

“If income is your objective, consider funds or investment trusts with a good track record of delivering consistent and growing dividends.”

Capital gains for 2019/2020

Link said capital distribution will be paid into investor's nominated bank account “on or around" 30 January 2020, though for those who hold the fund through an investment platform such as Hargreaves Lansdown, AJ Bell or Interactive Investor they may receive their payment a few days later.

Myron Jobson, personal finance campaigner at Interactive Investor, added that investors “should bear in mind that the receipt of their proceeds from the winding up of the fund will be deemed to be part disposals of their shares in the fund for capital gains tax purposes and may, depending on their personal circumstances and account tax wrapper status, give rise to a capital gains tax liability”.

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