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Britain's best known stockpicker suspends flagship fund after investor exodus

Key Points
  • Woodford Investment Management has suspended its flagship Woodford Equity Income fund after a slew of investor withdrawals and ongoing performance woes.
  • The fund has shrunk from £10.2 billion ($12.9 billion) in managed assets to £3.7 billion.

The U.K.'s most famous fund manager has suspended trading in his flagship fund after a string of poor performance and investor withdrawals.

Woodford Investment Management, launched in 2014 by renowned stockpicker Neil Woodford, announced Monday that it would "suspend the issue, cancellation, sale, redemption and transfer of shares in the Fund."

At its peak, the Woodford Equity Income fund managed £10.2 billion ($12.9 billion) of assets, but according to financial services and research firm Morningstar, that has shrunk to just £3.7 billion as of the end of May.

The catalyst for the suspension was a decision by local authority Kent County Council to withdraw its £250 million investment in the fund.

The suspension will last at least 28 days. In a statement, Woodford said the suspension will give it "time to reposition the element of the fund's portfolio invested in unquoted and less liquid stocks, into more liquid investments."

A statement from U.K. regulator the Financial Conduct Authority (FCA) on Tuesday said: "The decision to suspend was made by the fund's Authorised Corporate Director, in conjunction with the Depositary and is to allow an important orderly process of revaluation of asset sales to happen."

The FCA further added that it was aware of the situation and in contact with the firms involved in order to ensure that "actions undertaken are in the best interests of all the fund's investors."

Neil Woodford, Woodford Investment Management.
Woodford Investment Management

Liquidity issues

Ryan Hughes, Head of Active Portfolios at AJ Bell, said that with an element of the fund in illiquid investments, the fund was forced to sell its more liquid holdings to fund redemptions, which in turn can "exacerbate the problem."

"This is not a decision that will have been taken lightly and it is done to protect the interests of remaining investors," Hughes told CNBC.

"Events such as this are rare but it is a reminder to 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."

Withdrawals began around the summer of 2017, when shares of major shareholding Provident Financial reportedly plummeted 67.3%. Other major holdings Prothena and Allied Minds soon compounded the woes with significant plunges.

Losses have since continued to mount, and even with the FTSE All-Share up more than 7% since the turn of 2019, Woodford Equity Income has fallen 7%. The fund has heavy exposure to U.K. construction and real estate companies, which have been punished by uncertainty over Brexit.

May saw the fund fall more than three times as much as the market. As recently as Monday, another significant Woodford holding, U.K. construction firm Kier Group, saw its share price drop 40% after delivering a profit warning.

Aside from performance, Woodford has suffered further damage this year after a report from Citywire in March revealed Woodford was listing unquoted stocks on Guernsey's International Stock Exchange to stay within the FCA's parameters, while Morningstar downgraded the fund over its "extreme" portfolio, further unnerving investors.

Shares of British stockbroker Hargreaves Lansdown, which holds a collective stake of £1.4 billion in Woodford Equity Income, according to the fund's 2018 annual report, fell by 4.4% during Tuesday morning trade.

Part of the cycle

John Ricciardi, CEO of Kestrel Investment Partners, told CNBC's "Squawk Box Europe" Tuesday that value investing, with a focus on commodities and financials, had suffered a "terrible time."

"Global exports have contracted by nearly a third over the last 12 months, it's been tough on commodities everywhere but in oil, actually - you've got an underperformance on the energy and materials side of 25% and 35%, and now we've got an inverted yield curve which really puts more pressure on financials themselves," he said.

"In a sense, this is a sector shift, and those investors or investments that concentrate on those will have difficulty relative to other investments. That's simply part of the style and all managers go through something like that as the global cycle evolves."

Overall, the year has been choppy for commodity prices, which have suffered from uncertainties surrounding global macroeconomic developments such as the ongoing U.S.-China trade war and U.S.-Iran tensions. The price of Brent Crude is down 14.83% over the past year, while U.S. crude has fallen 15.63%.