Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
It was the investing news that launched a thousand headlines. On Monday, the struggling Woodford Equity Income Fund suspended its trading. How did it happen? What happens now? And as a customer of AJ Bell Youinvest, what should you know that perhaps hasn’t been covered elsewhere?
Why the fund was suspended
The Woodford Equity Income Fund has been a firm favourite with investors for some time. Encouraged by the strong track record of its fund manager Neil Woodford, investors at one stage entrusted him with over £10bn of their investments. But recently that love for Mr Woodford faded, and investors in the fund decided to take their money elsewhere.
The more investors took out their money, the harder it became for the fund to sell assets to generate money for other investors wanting to withdraw. This is because it meant having to offload hard-to-sell or 'illiquid' positions.
To avoid having to sell positions at any price, on Monday the fund operators decided to suspend dealing in the fund to allow a more orderly sale process. Which means, at the moment, investors can’t buy or sell the fund at all. And in recent times, there’s been a lot of selling…
What happens now?
Those running the fund will regularly assess how much money investors want back and compare this with their ability to sell portfolio holdings. When those two figures come into balance, they’ll reopen the fund, allowing investors to withdraw their money.
The initial announcement suggested this might happen in the next four weeks, but we’ll be waiting for more news from the fund to see.
I’ve heard other platforms have some big exposure to Woodford’s funds, do AJ Bell Youinvest?
As part of our mission to help people invest, we provide our customers with investment ideas, which include our Favourite funds list, Ready-made portfolios and range of AJ Bell funds. None of these include the Woodford Equity Income Fund, or any other Woodford-managed funds:
Favourite funds list
The Woodford Equity Income Fund was removed from our Favourite funds list in September 2018. It was our opinion that the manager had strayed from the process that had brought previous success, and better funds were available to invest in. At the time, we contacted any holders of the fund to inform them of this change in our selection.
Ready-made portfolios
Our Ready-made portfolios are made up only from holdings chosen for our Favourite funds list. As we launched the Ready-made portfolios in December 2018, the Woodford Equity Income Fund or any other Woodford-managed fund have not been included.
AJ Bell funds
Our AJ Bell funds are managed by our team of experts using passive-based funds known as Exchange Traded Funds (ETFs). As ETFs trade on stock exchanges and work in a similar way to investment trusts, they’re not required to return money to investors when redemptions are made. This removes the risk of experiencing a ‘Woodford-type’ situation within our funds.
How are funds chosen for your Favourite funds list?
The Favourite funds list includes both active and passive funds. When selecting active funds, we consider:
- The fund manager, their team and the wider organisation
- The investment philosophy underpinning the investment process
- The fund’s objective and suitability to meet the fund’s strategy
- The way the fund portfolio is constructed and whether it’s suitably diversified
- The performance of the fund and its ability to meet its objectives
- The cost of the fund and the value added by the fund manager
Our aim is to find funds that deliver performance worth paying for. The cost of the fund is a final value consideration, only after all the other tests have been met.
What should I do now?
If you're an AJ Bell Youinvest customer who's invested in the Woodford Equity Income Fund, keep an eye on our website and the press for news about the suspension.
Many investors will be looking to learn from this week’s events, and of course, it could act as a reminder to reassess any other investments you have that are causing you concern. If you need any ideas, our Favourite funds list, Ready-made portfolios and AJ Bell funds are designed to help.
These articles are for information purposes only and are not a personal recommendation or advice.
Written by:
Ryan Hughes
Ryan Hughes, Investments Director - AJ Bell Investments
Ryan started his career in 1999 working for an independent financial adviser, progressing to become Head of Portfolio Management at an award-winning advisory firm. Ryan then joined a global asset management firm as a Fund Manager, where he oversaw more than £10bn of multi-asset portfolios and also sat on the investment and global asset allocation committees. After seven years, Ryan joined a small multi-asset boutique managing portfolios for clients all around the world, before joining AJ Bell in 2016 to help establish our investment capability and overseeing all investment research for AJ Bell. In 2022, Ryan was appointed as Head of Investment Partnerships with responsibility for managing bespoke portfolios tailored to specific adviser needs and then in 2023, Ryan was made Investments Director with oversight of AJ Bell’s investment capability.
Ryan is a member of the CFA UK Society, is frequently asked for his views in the press and on panel debates while also being recognised as one of the leading fund researchers in the UK.
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