Investors claim scant returns from failed fund
EIGHT months after Neil Woodford froze withdrawals from his ill-fated Equity Income fund, investors are finally getting some money back and will be wondering where to reinvest it.
Many will lose up to half their original investment due to Woodford’s disastrous stock picking, which saw his flagship fund plunge while rivals soared during the stock market bull run.
Woodford was once the UK’s undisputed star fund manager, but hubris set in after he formed his firm Woodford Investment Management in 2014 and began dabbling in unfamiliar sectors.
Woodford Equity Income plunged from more than £10billion to less than £4billion as investors pulled their money, but last June he blocked withdrawals while continuing to pocket an incredible £65,000 a day in charges.
Supervisor Link Fund Solutions sacked him in October and last week announced it was returning £2.1 billion to investors, many of whom had seen their retirement plans wrecked.
Ryan Hughes, head of active portfolios at AJ Bell, said the first payouts will come as a relief, but up to 30 per cent is being held back that Woodford invested in illiquid, unquoted stocks that are proving hard to sell: “Investors remain in the dark as to how long they will have to wait for the remainder, and how much they are likely to get.”
The City regulator, the Financial Conduct Authority, is conducting a formal investigation into the events leading up to Woodford’s collapse.
Hughes said investors will also be on the hook for around £10 million in wind-up costs.
Interactive Investor head of funds research Dzmitry Lipski said those who put too much faith in Woodford have learnt a painful lesson: “The fate of his investment empire is a timely reminder that rising stars can also fall.”
For those who have lost faith in active fund management, he tips passive index tracking investment vehicle Vanguard FTSE UK Equity Income Index.
Otherwise, Lipski recommends City of London Investment Trust for income: “This has a formidable reputation after raising its dividend payments for 53 consecutive years.”
Investors willing to take on more risk might consider Man GLG UK Income fund, which targets smaller dividend stocks and has produced “some exceptional outperformance”.
Darius McDermott, managing director of FundCalibre, tips “good, old-fashioned, equity income fund” Royal London UK Equity Income: “Some 90 per cent of holdings are large and medium-sized companies in the FTSE 350, and it shuns risky assets such as derivatives and unquoted companies.”
The fund currently yields 4.2 per cent and has outperformed its peer group in nine of the past 10 years.
Those who are happy to risk investing in smaller companies should consider LF Gresham House UK Multi Cap Income. “It specialises in micro, small and medium-sized companies, and yields 3.5 per cent,” he added.