What to do if you’re a Woodford hostage
Tens of thousands of investors trusted him with their savings. But as the crisis-hit City guru bans ANY withdrawals, here’s...
3-PAGE SPECIAL
oN MoNdAY, star fund manager anager Neil Woodford made the shock decision to block withdrawals from his is flagship Equity Income Fund.
The move has sent shockwaves across cross the City — but what does it mean for ordinary ry investors?
Here, Money Mail explains all you need to know about what happens to your money y now and the steps you can take to shore up your finances. finances . . .
WHAT’S HAPPENED TOO THE EQUITY INCOME FUND? D?
oN MoNdAY, the country’s best-known -known fund manager, Neil Woodford, barred savers rs from taking their money out of the fund for at least ast 28 days. All trading in it has been suspended. Investors vestors cannot buy, sell or transfer shares — also known nown as units — and no new shares will be issued.
WHY HAS IT BEEN SUSPENDED?
IN A statement, Woodford Investment ment Managetors. Management said this was to ‘protect’ investors. Investors had been withdrawing their cash from om the fund in swathes, raising alarm bells that Woodford dford may not be able to pay them back quickly without ithout further damaging the value of the fund.
Under normal circumstances, the he amount of money being invested into a fund would uld be roughly the same as what is being taken out. or, if the fund is growing, it will exceed withdrawals. ls.
But the situation has gone into reverse everse for the Woodford Equity Income Fund — money ney is pouring out at a far faster pace than it is coming ming in.
The fund reached its peak in May 2017, when it was valued at £10.2 billion. But, in the e latter half of the year, after Jupiter sold its £300 million stake, the fund went into decline.
In recent months, the rate at which savers have been ditching Woodford has accelerated. ccelerated. In just four weeks, the fund lost £560 0million million of its value, dropping from £4.33 billion in April to £3.77 billion at the end of May, according to financial data firm Morningstar.
Fund managers usually carry cash reserves of between 1 and 5 pc of the value of the fund to cope with withdrawals, but, when large numbers of investors ask for their money back, the fund has to sell shares.
As a result, Woodford had to sell shares in the largest companies in his portfolio, as they are the quickest to sell at a good price. This has left him with mostly small and mediumsized companies and unlisted shares, which take longer to sell.
If withdrawals had been allowed to continue, the fund manager could not sell investments at the rate necessary without offloading them cheaply, which would be harmful to the remaining fund investors.
HOW DID IT COME TO TOTHIS? THIS?
WoodFord’s investment style is contrarian contrarian, which means he goes against current market trends.
He has invested in UK companies, as he believes Britain’s economy is in better health than it is being given credit for and that the values of UK company shares are artificially lower as a result. Adrian Lowcock, head of personal investing at Willis owen, says: ‘A period of underperformance is natural for a contrarian fund manager, as they are investing in the opposite direction to the majority of the market.
‘Mr Woodford was positioned for a post-Brexit recovery and, while his logic about the UK economy may be sound sound, we have not got a resolution to Brexit. Uncertainty will be hanging over the UK for some time, and Woodford’s investments are likely to remain under pressure, with no visible end in sight.’
At the same time, Woodford has come under fire for some of his individual stock picks.
on Monday, shares in the construction group Kier crashed by 41pc 41 pc — Woodford is the group’s biggest investor, with a 20 20pc pc stake.
Before this slump, the share price had fallen 68 68pc pc since he invested in the group with the Equity Income Fund in August 2018.
other stocks that have fared badly include doorstep lender Provident Financial, where shares have fallen 81 pc in the past two years; AA, which is down 88 pc since its 2015 peak; and Capita, which fell by 70 pc in two years.
WHAT IS WOODFORD GOING TO DO NOW?
WoodFord plans to restructure the portfolio. Experts say he will remove some unlisted shares, which have caused the liquidity problem, and rebuild his holding of shares in FTsE 100 companies again.
ryan Hughes, head of active portfolios at AJ Bell, says: ‘Woodford has indicated that he will be looking to reposition the portfolio away from illiquid holdings during the suspension, and therefore investors may have to be patient for the fund
to reopen. Events such as this are rare, but it is a reminder of all of the risks that come with investing in illiquid assets while offering daily liquidity to investors.
‘This never appears to be a problem when money is flooding in, but when sentiment turns, it can come back to bite investors badly, as has happened here.’ WHAT HAPPENS TO MY MONEY? Your money will continue to be invested in the same way it was before. So, i if shares in the fund’s underlying companies c rise, so, too, will the value valu of your fund.
Likewise, if they fall, your fund value will fall. fal
The only difference d is that you cannot buy or sell units while the suspension is i in place.
If you have hav an online account with an investment inve platform such as AJ Bell o or Charles Stanley, for example, you can log in and check your savings’ saving worth, as they will continue to be valued daily. BUT I JUJUST ASKED TO TOSELL SELL MY STAKE . . . Just because becau you asked your fund manager to sell s your stake last week does not mean me you are entitled to your money back.
It all depends depen on when your order to sell your shares was placed and how long they th took to sell. If the suspension f fell in the middle of this, and the request requ was not fulfilled in time, you are trapped for now. WHAT IIF I NEED TO ACCESS ACCES MY CASH? Unfortunately, unfort Woodford has blocked blo all savers from withdrawing withd their money, without exception, for at least 28 days — though th experts fear it could co be longer. Patrick P Connolly, a chartered cha financial planner ner with Chase de Vere, says: ‘ Those who have stayed are now trapped and we don’t know for how long. ‘Hopefully, these investors have invested sensibly and won’t be over- exposed to Woodford, so his struggles won’t be having a major impact on their overall finances.
‘our advice to existing investors is not to panic. There is nothing they can do now, other than watch and wait.
‘ But they should get some reassurance from the fact that Woodford has suspended the fund because of liquidity concerns and, while being a forced seller is a bad position to be in, their underlying investments are broadly still there. It’s not as though the fund will suddenly be worthless.’ IS THERE A RISK I WON’T GET IT BACK? THIS is unlikely. Shan Phoenix, director of wealth advice firm Geneva Wealth, says: ‘for you not to get any money back, every single company the fund had invested in would have to go bust at the same time.
‘The reason the fund has been suspended is because of its own liquidity issues, not because the companies it has invested in are on the verge of collapse.
‘When the suspension is lifted, and Woodford has repositioned the fund, it will then be able to fulfil further withdrawals.’
If there is a problem later on, investors are covered by the financial Services Compensation Scheme (FSCS). Investors are protected up to £85,000 for each individual investment they hold. COULD I BE INVESTED BUT NOT KNOW? If You are invested in Hargreaves Lansdown’s Multi-Manager Income & Growth fund, some of your savings will be exposed to the fund. It is a £3 billion fund, of which around 13 to 14 pc is invested in Woodford.
Your pension savings may also be exposed. If you have a self-invested personal pension (Sipp), check the list of funds in which you have chosen to invest.
If your personal pension is managed by a professional adviser, call them or check your statement to find out if you are invested. WILL I STILL BE CHARGED A FEE? YES. While the fund is suspended, your savings are still being professionally managed, so Woodford will be charging a fee. The vast majority of investors pay an annual charge of between 0.65 and 0.75 pc. WHAT IF I’M PAYING IN A DIRECT DEBIT? THIS depends on the platform provider you have been using. At present, you cannot buy any more units in the fund. This means your provider will either stop taking your direct debit until the fund reopens, take your money and put it into a cash account, or ask you where else you would like to invest it.
If you have not heard from your provider, contact them to tell them where you would like your money to be invested.
Hargreaves Lansdown says it will continue to collect investors’ direct debits. It is writing to savers this week to ask them where they want their money to be invested.
If they do not respond, then their cash will automatically be put into a cash account instead. The account pays a nominal 0.10 pc rate of interest on deposits.
Hargreaves says the account is known as a ‘cash park’ and is not designed for savers to keep their money in it for a long time.
But it means you can take your time to make investment decisions without losing your Isa allowance. WHAT ARE MY ALTERNATIVES? If You invested a lump sum in Woodford, you must just wait until you can access your cash before deciding if you want to withdraw it and invest it elsewhere. But, if you are drip-feeding monthly sums, what are your other options now?
Adrian Lowcock, of Willis owen, recommends three funds as alternatives to the Woodford Equity Income fund. first is Henry Dixon’s Man GLG UK Income fund. Mr Lowcock says Mr Dixon is a disciplined manager who looks for companies whose share price he believes to be undervalued.
The fund invests in FTSE 100 companies as well as mid- sized companies in the FTSE 250. It also targets companies that generate a lot of cash, as well as having significant levels of cash savings. over five years, a £10,000 investment would now be worth £14,631.
He also likes richard Colwell’s Threadneedle Uk Equity Income fund. He says Mr Colwell is flexible and able to invest in firms he thinks are cheap and offer significant growth. He carries out detailed research of companies he invests in and looks for well- managed businesses that generate a lot of income, as well as those recovering from a period of poor performance.
The fund can invest anywhere, but is typically invested in large FTSE 100 companies. A £10,000 investment over five years would now be worth £12,106.
finally, Mr Lowcock tips francis Brooke’s Troy Trojan Income fund. He says Mr Brooke is a conservative fund manager whose first objective is to avoid losing investors’ money and protect their capital.
Mr Brooke looks for businesses that can produce steady, long-term income as well as grow. Holdings are selected from the FTSE 350, with a preference on larger companies.
The fund tends to favour business less sensitive to the economic cycle, such as healthcare. This has delivered strong long-term performance. over five years, a £10,000 investment would now be worth £13,689.
Meanwhile, rob Morgan, pensions and investments analyst at Charles Stanley Direct, recommends the JOHCM UK Equity Income fund.
He says it is worth considering for those looking for income from the UK stock market, and investors who favour well-rounded exposure, including economically sensitive and international and defensive areas. These include oil and gas, found in many equity income funds.
The managers are experienced and seek out good-value areas. If you invested £10,000 five years ago, you would now have £12,445. CAN I COMPLAIN ABOUT THIS? You should first complain to Woodford Investment Management.
If investors have further questions about the suspension of the fund, they can call 0333 300 038 or email info@woodfordfunds.com
If you don’t get the response you want, you can refer your case to the financial ombudsman Service by calling 0800 023 4567 or writing to Exchange Tower, Harbour Exchange, London E14 9Sr. s.partington@dailymail.co.uk
HARGREAVES Lansdown owes its customers one hell of an apology.
As we reveal on Pages 38, 43 and 44, Neil Woodford’s decision on Monday to block withdrawals from his Equity Income Fund was a shocking blow for investors.
But savers aren’t just furious with Woodford, they are rightly demanding an explanation from the popular fund supermarket Hargreaves Lansdown, which has obstinately championed the fund, despite its recent decline.
Ordinary savers rely on the likes of Hargreaves for help navigating the investment maze. By including Woodford in its list of 50 favourite funds, the firm gave investors a strong impression of confidence.
Only last month, in an update to its investors entitled ‘A step in the right direction’, Hargreaves wrote: ‘ Woodford’s proven ability to perform through the market cycle means we retain our conviction in him to deliver excellent long-term performance.’ It was quick to remove the fund from its Wealth 50 list come Monday afternoon, but the damage had been done.
As one investor told us: ‘I feel I’ve been led down the garden path. I don’t have the time or resources to watch all these funds. That’s why I pay a company like Hargreaves.’
Over the years, Hargreaves has contributed heavily to Woodford’s rise as a star manager, marketing investments on his name.
The question investors will now ask is whether Hargreaves became so invested in him it overstepped the line and stopped being able to look at his funds dispassionately.
Money Mail has had reservations about Woodford for a while. Almost a year ago, Prudent Investor Tony Hazell warned in his column that his Equity Income Fund was performing abysmally, and told how he had ditched his own holding.
Yet, all the while, Woodford and Hargreaves have made a fortune from our fees — and will continue to do so despite Monday’s events.
Instead of pocketing yet more of our cash, perhaps they should offer the loyal investors they have left in the lurch a serious discount.
‘Dangerous’ idea
SEcRETARY of State for Housing James Brokenshire also appears to have lost the plot this week. His suggestion that savers should be able to raid their pension pots in order to help them buy a first home is a terrible one.
With the best intentions, he wants to give struggling first-time buyers a helping hand.
But this can’t be at the expense of long-term saving for retirement — otherwise you just kick the financial distress down the road.
The experts agree. Former pensions minister Ros Altmann says muddling pensions with housebuying could ‘damage retirement prospects for many’ and ‘increase the risk of old-age poverty’.
Meanwhile, Tom Selby, of investment firm AJ Bell, says: ‘This idea smacks of dangerous political short-termism. The further you go down this rabbit hole, the greater the risk you fundamentally undermine the central plinths of the UK’s retirement savings landscape.’ Hear! hear!
Facebook fail
WHY on earth did it take IT whizzes at Facebook Towers so long to close a fraudulent account? As we report today on Page 45, charlotte Wilkinson, along with friends and family, reported hundreds of times that her page had been hacked.
Yet she was forced to sit on the sidelines and watch crooks relentlessly targeting her loved ones.
Only after Money Mail intervened did the firm suspend her account.
To make matters worse, the social media giant was slow to apologise about the whole affair.
Imagine if banks treated fraud victims in this manner? The sheer arrogance is astounding.
On the right track
FINALLY, a big thank you to car hire firm Enterprise, of Oakland, california. This is the first time in recent holidays I have returned home after hiring a vehicle and not discovered unidentified charges on my credit card bill (yet, anyway).
It’s a sorry indictment of the state of the car rental industry that this is so surprising — but worth a ‘well done’ nonetheless.