Neil Woodford was one of the biggest fund managers in the UK and it was his star power that attracted many investors to his equity fund. However, this popular investment fund went bust and his investors were left with a bag full of holes and have waited for a long time to be compensated. Reports suggest that they will now receive around 46.4p and 59.0p per share. The payout is expected be made at the end of January.
The main thing to understand about the payout is that investors can expect major losses from their investment. According to the data, the fund lost 14.9 percent in value from June 3, 2019, which was when the fund stopped trading to Jan 2020. Compared to the 9.4 percent increase that all of the other active funds on the market saw, investors missed out growing their investment.
This is mainly because of the various illiquid holdings that the fund holds. Three-quarters of the fund were easy enough to liquidate. They composed of stock that people were willing to buy. However, the remaining assets that the fund holds are very hard to convert into funds that can be released to investors. As it is 90 percent of the basic stocks have been sold. Around £1.9 billion has been raised. The remaining assets are not going to be that easy or profitable to sell and many experts think that it will only be possible after heavy discounts.
Plus, the £1.9 billion number is not final. The fund will have to pay for various costs. It already faces £10 million in fees. This includes transaction fees, audit fees, and more payments that are needed for normal business to happen. There is also an additional £22.5 million projected to be paid as more assets are finding a harder time to be sold.
Avoiding the Trap
The Woodford investment fund has set an example for UK investors who are now asking what they must do to avoid being caught up in such a debacle. The main takeaway from the fund’s downfall is the fact that it had too many illiquid holdings. This means that it had stocks that were not paying dividends when they needed to be.
Experts say that Woodford had decided to gamble and went outside his core competence which brought about devastating results. If he had stayed the course they think he would have been more successful. This brings up the simple idea of not investing in things that you don’t understand. The best advice is to study the type of stock your investment fund is buying into and don’t be caught unawares!
