Neil Woodford’s flagship income fund has had its rating cut to neutral by analysts at data researcher Morningstar after prolonged underperformance and ‘persistent redemptions’.

Morningstar analyst Peter Brunt says the manager’s ‘relentless willingness’ to push the LF Woodford Equity Income Fund’s (BLRZQ62) portfolio to its liquidity limit has left it facing risks from ‘extreme positioning’.

Woodford is one of the UK’s best-known fund managers and has built up a loyal following among the investment community after three impressive decades at Invesco.

But his contrarian approach is facing increasingly close scrutiny after struggling to match its benchmark FTSE All-Share total return index for more than two years.

According to data from Morningstar, £10,000 invested in the Woodford fund since October 2018 would now be worth just £8,005.72. Since the fund’s inception in June 2014 the fund has returned just 3.5% to investors.

The dismal performance track record has left investors frustrated and sparked a wave of orders to withdraw cash from the fund, called redemptions. That trend has been accelerating in 2019 with around £158m of outflows during March alone.

The prolonged spell of withdrawals has seen total assets under management nearly halve since 31 December 2017 to £4.33bn (as of 30 April) and slump from £9.5bn at the end of 2016.

Woodford has also come under fire for his handling of stakes in private businesses, such as DNA research and technology developer Oxford Nanopore.

Several unquoted ventures have been slow to embrace a stock market listing, typically an opportunity to cash in on previous early stage investments.

This has forced Woodford to take ‘extreme action’ to keep the fund’s exposure to unquoted companies below its 10% limit, says Morningstar’s Brunt.

Woodford has reportedly acknowledged these investor concerns and vowed to reduce such holdings in the future, even promising to abandon investing in unquoted early stage ventures over the medium-term.

Neil Woodford also runs a once-popular investment trust, the Woodford Patient Capital Trust (WPCT). It has also left investors annoyed given that shares in the trust have declined around 20% to 80.7p since launching in 2015.

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