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Earlier this week Woodford Investment Management announced that withdrawals from the LF Woodford Equity Income Fund would be gated. Over the past month the pool of capital in the fund had diminished by £560m, as the underlying holdings decreased in value and investors were spooked. The end result is around £3.8bn of investors money trapped in a portfolio that has struggled since inception.
The real hiccup from Mr. Woodford hasn’t been his over optimism in the UK’s economic performance and the unjustified ‘Brexit discount’, but instead his (newly found) fondness for illiquid and private companies. As he has come under increasing pressure, and the outflows mounted, he has struggled to liquidate holdings at the same rate as redemption requests. This isn’t the first time that we have seen a fund manager struggle with outflows and an illiquid portfolio. Post the Brexit referendum in 2016, seven UK property funds were forced to suspend trading.
At this juncture, we think it might be useful to remind readers of the structural advantages that investment trusts have over open ended funds, which in many cases make them a sounder investment. As we are currently witnessing, these advantages are most keenly felt at times of political and economic uncertainty…
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