When Neil Woodford announced the suspension of trading in his flagship Woodford Equity Income Fund, it was for an initial 28 days. That was meant to give him time to rebalance the fund’s assets and address the run of investors wanting their money out.
Those who hoped that would be the limit of the suspension have had those hopes dashed. Woodford announced on Monday the fund is to remain locked for a further period, with the next update needing to come by 29 July.
There’s obviously not a lot investors can do right now other than sit and wait. But after reading a few of their comments, if I were one of them, there are some steps I’d be planning for when the fund is re-opened for trading.
Into cash
Some are frustrated because they can’t get money out that they were planning to use in the near future, like paying for education costs this summer.
Any cash I needed to use within the next few months would simply not be in a stock market investment. Even if your investment is supposed to have quick access (and we’ve now seen that’s something that can’t really be guaranteed with a fund), you’d be leaving yourself open to risks of short-term ups and downs. I don’t want those risks at the best of times, and certainly not in today’s market.
No, any cash I had earmarked for a specific and important use would be out of shares and into a cash savings account well ahead of the time I needed it. Shares are for long-term investments, not short-term savings.
Poor performance
Others have been shocked by the recent performance of the fund. Its assets have fallen a further 3% since the suspension while the FTSE All Share has gained 4%. Estimates suggest the Equity Income Fund has managed a total return since its inception of less than 1%.
A number of investors have said they expected the fund to be safe and carry low risk (“boringly safe,” as one put it), and I’ve said before that its ‘Equity Income’ name is suggestive to me of a fund invested mainly in income-providing, blue-chip shares.
But it’s turned out to be anything but that, with significant chunks of its cash invested in high-risk (and often unquoted) startups that are as-yet unprofitable. There have been a couple of spectacular failures too, like a high-risk punt on Purplebricks long before it had any hope of showing profits.
Know what you’re buying
That’s the other thing I’d do before considering moving cash to any new pooled investment (including investment trusts). I’d carefully examine where it was putting its money, which is easy to do with the Woodford Equity Income Fund as it publishes its portfolio online for anyone to read. Last time I looked, there weren’t a lot of what I’d consider safe income stocks there.
One possible upside is that the Woodford Patient Capital investment trust, which is not directly affected by the Equity Income Fund suspension (but does invest partly in the same assets), has seen its shares crash and is now trading at a 33% discount, so investors might see a bargain there. But again, I’d personally only invest if I liked the look of its higher-risk investments.