The restructuring of Woodford Equity Income Fund is gathering pace
Thursday 27 Jun 2019 Author: Daniel Coatsworth

The number of deals involving stocks being bought by third party investors from the troubled Woodford Equity Income Fund (BLRZQ73) is picking up pace.

Dealing in the fund is currently suspended while fund manager Neil Woodford restructures the portfolio, selling the most illiquid holdings and reducing exposure to many other stocks in an effort to raise cash to meet redemptions and be able to increase the weighting towards large cap companies.

Regulatory filings show that Woodford has already cut its positions in some of the fund’s biggest holdings, including private equity specialist Oakley Capital Investments (OCI:AIM) where its stake has been reduced from 19.39% to below 5%.

The fund’s position in housebuilder Crest Nicholson (CRST) has been trimmed from 15.08% to 9.83%; and its stake in payments group PayPoint (PAY) has gone from 15.73% to 10.98%. Other names being sold down from the Woodford fund include intellectual property incubator IP Group (IPO) and media group Time Out (TMO:AIM).

Oliver Brown, fund manager at MFM UK Primary Opportunities Fund (B8HGN52), says brokers are having a feeding frenzy as they know what Woodford holds and they are trying to put together blocks of investors to buy stock from the suspended fund.

Brown is among the institutional investors taking advantage of the situation, saying there is an opportunity to buy at a double discount.

The market knows what Woodford has to sell and so these stocks are being marked down in price because of the share overhang. Some of the stocks are also trading on low valuations because of discounts applied to UK stocks amid fears over the impact of Brexit.

‘We’re in the market for some Eddie Stobart Logistics (ESL:AIM) stock,’ says Brown. ‘Its shares have gone from 80p to 70p off the back of Woodford being the largest shareholder – the market knows he needs to sell.

‘One broker has been trying to get stock for 50p and I’m sure Woodford has said no at that price. However, we’re watching closely as we know he is a distressed seller.’

Brown says his goal is to buy Woodford-related shares below the current market price. He has already done a deal with Woodford for MFM UK Primary Opportunities Fund to buy some of its holding in leisure group Ten Entertainment (TEG).

‘The shares had drifted from 225p to 210p which we can only assume to be the Woodford effect. We bought at 212p from Woodford and the stock last week went back up to 230p.’

The suspension on the Woodford fund will be reviewed every 28 days but investors shouldn’t expect dealing to resume at the next review, scheduled for 1 July. It could take many months to restructure the portfolio.

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