Message From The LEBC Investment Committee

July 2019
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Woodford Income Fund

The above fund is to remain suspended from trading for a further 28 days. This means that investors cannot cash in any of their investments in the fund until the suspension is lifted, nor can the fund accept new investment into it. The fund remains invested and the price of the fund will continue to change daily, reflecting the prices of the underlying investments in it.

This suspension was put in place in order to protect existing investors against large potential losses which would have arisen had the fund been forced to sell assets to meet redemption requests, including a large withdrawal requested by Kent County Council. The suspension of trading in an equity fund is an unusual event. It has arisen in this case due to the large holding in the fund of unquoted smaller companies, whose shares cannot be easily sold at an attractive price to investors in the same way that companies quoted on the London Stock Exchange are readily realisable. The suspension is therefore designed to give the manager time to sell these assets in an orderly manner and then to reinvest them in larger, more liquid shares which will enable the manager to recommence trading. This process could take longer than 28 days.

When trading recommences LEBC’s Investment Committee will decide whether to continue to hold the fund or recommend an alternative. That decision can only be made when we know the new makeup of the fund, what the current trading conditions are and the economic and political influences on markets then.

Income Payments

In the meantime, all investors in the income fund will continue to receive dividend payments from the fund as and when these are declared. If income is being paid to a bank account currently this will continue to be the case. Where income payments are being reinvested these will be held in cash until the fund manager receives alternative instructions.

For investments held within the LEBC Governed Portfolios the dividends to be reinvested from this fund and any ongoing regular investments into the portfolio will be apportioned to the Threadneedle UK Equity Income fund until further notice. This fund has been chosen by the Investment Committee as it invests in the same sector (UK Equity Income), is already a part of the portfolios and has an excellent and consistent track record of performance over the short and medium term.

Investment Committee Oversight

The Investment Committee have kept this fund under review for some months now. The fund was initially selected to be included in the portfolios in 2016. 

We felt that some exposure to domestic stocks was desirable in order to balance the other funds in the portfolio which have a focus on global stocks. The Woodford fund was selected to provide that exposure. The delay in reaching a withdrawal agreement from the EU has been detrimental to domestic stocks and has benefitted global stocks in which the majority of the portfolio’s assets are invested. But the Woodford fund has suffered in part due to this. We will review the holding again once it reopens and we can evaluate whether the new make up of the fund continues to serve its purpose in the portfolios. The inclusion of a wide range of funds with complimentary investment mandates is one of the benefits of investing in the portfolios as it lessens the impact of poor performance in any one fund.

Along with others in the financial services industry and the Treasury Select Committee we have requested that the fund manager should reduce their fund management fees while the fund remains suspended. So far this has not been forthcoming, but we will continue to press this case on behalf of investors. Further updates will follow the Investment Committee’s meeting later this month.

If, in the meantime, you have any questions or concerns please do let us know via your usual LEBC adviser.

Derek Miles
Chair of The LEBC Investment Committee

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