There was only one story dominating the investment world this month: at the start of June, after months of poor performance and escalating redemptions, Neil Woodford gated his flagship Woodford Equity Fund, stopping investors from withdrawing their money for the foreseeable future.
This move has caused shock waves in the investment industry, with calls for Woodford to waive investor fees until the fund reopens. A call which has, to date, been rejected.
As a result the fund was downgraded by Morningstar for a third time, to a Negative rating. Previously Morningstar analysts described the fund as “structurally impaired” following persistent redemptions, which have seen it shrink from £10 billion in April 2017 to just £3.7 billion prior to the shutters coming down.
Hargreaves Lansdown, which had been a vocal supporter of the fund — and has a significant proportion of its clients invested with Woodford — has subsequently dropped the fund from its Wealth 50 list. It has also waived its platform fee for trapped investors.
Omnis Income & Growth - which was until this month managed by Neil Woodford - also announced that Jupiter Asset Management will now run its £317 million fund.
The FCA has launched a formal investigation into the fund's suspension amid growing concerns about its relatively high exposure to illiquid investments. The regulator also revealed that the fund had breached the 10% exposure to unquoted holdings in February last year.
To make matters worse, the slew of bad news at Woodford Investment Management has also had an impact on the investment trust it runs, Woodford Patient Capital (WPCT). This trust was specifically set up to have a high exposure to unquoted stocks, but poor performance add ongoing negative publicity has helped to drive its share price down by 30% this month. According to the Association of Investment Companies, it was trading on a 38.1% discount at the start of June.
In the wake of this ongoing crisis, Woodford has issued an apology to investors and said that the fund will reduce exposure to illiquids during the period it is suspended.
Woodfood built his reputation as a value investor over three decades, buying out-of-favour stocks and holding them for the long term. This strategy, though, has been sorely tested in recent years, with a number of stock selections, such as construction firm Kier, outsourcing group Capital and finance company Provident Financial producing poor returns.
Invesco Launches Environmentally-Focused ETFs
Invesco has launched three new exchange-traded funds which will take into account a company’s company environmental, social and governance (ESG) track record.
These will be passive funds, but will track customised indices where these ESG scores are taken into account, alongside the size of a company.
Invesco is offering three global products, although one will have a focus on US stocks, and another on European stocks. The US-focused ETF will have an ongoing charge of 0.09%, while the European and World version will have charges of 0.16% and 0.19% respectively.
The indices tracked by these new ETFs are designed to increase exposure to companies that have robust and improving ESG strategies. It should also ensure that companies involved in some controversial business practices are excluded.
Invesco says that currently around 8% of securities have been removed from the various indices because of poor ESG scores. The indices are reviewed and rebalanced on a six-month basis.
Man GLG Launches High Yield Opportunities Fund
Man GLG has launched a UK-domiciled High Yield Opportunities Fund, which aims to mirror the Global High Yield launched earlier this year.
This fund — like the global version — will be run by Mike Scott. Man GLG says this move will allow easier access to a wider range of investors.
Both funds aim to deliver a high level of income and cyclical strong total returns. Scott takes a regional and sector-agnostic approach when selecting securities, combining a fundamental credit analysis with more top-down thematic research.
First State Broadens Access to China Fund
First State Investments has launched a Ucits version of its China A-shares strategy, to meeting growing demand from European investors.
The fund invests in companies from mainland China that are either listed on the Shanghai or Shenzen stock exchanges. The fund will be managed by the First State Stewart Asia team, led by portfolio manager Quanqiang Xian, who is based in Hong Kong. The fund manager was on of the first companies to receive a quota approval under the Qualified Foreign Institutional Investor programme almost 10 years ago.
M&G Cuts Fees
M&G Investment has cuts the fees on the vast majority of its fund range. It has also introducing a new charging model that reduces fees as a fund grows in size.
From August 1 this year, investors will be charged an ongoing charge fee (OCF) that includes both the single annual charge and any additional expenses. M&G says this will reduce charges on 90% of its funds, although this new charge still won’t include transaction costs.
At the same time, M&G has introduced a system where this fee will reduce once funds exceed £1bn of assets under management. At this point the OCF will be reduced by two basis points. It will be further reduced if assets rise to £2bn, with a maximum reduction at £6bn (at which points the discount is capped at 12 basis points).
M&G says 12 of its funds will currently qualify for a discount, including its Dividend fund, Bronze-rated Recovery fund, the Silver-rated Corporate Bond fund run by Richard Woolnough, the Silver-rated Optimal Income fund and the Global Dividend fund, which also has a Morningstar Analyst Rating of Silver.
AJ Bell’s Ryan Hughes says these changes will make it easier for investors to know how much they pay in fund costs every year. However, some commentators have pointed out the firm's funds are still expensive relative to competitors and say it could have gone further.
Lindsell Train Cuts Investment Trust Fees
Lindsell Train Investment Trusts (LTI) is cutting its management fee from 0.65% to 0.6%.
The trust, which is run by Nick Train, has seen a year of strong performance and growth, which has netted the management £2.43 million in performance fees. In its recent annual report its said it had delivered a total return of 23.3% (NAV) significantly outperforming the 12% return delivered by the MSCI World Index over this period.
This fee cut will be introduced at the beginning of July and will coincide with reduction to management fees on other Linsdell Train funds. The trust has benefitted from a significant holding in the unquoted parent company, Lindsell Train, which has benefitted from a strong performance on many of its retail funds in recent years.
This comes as the trust’s premium edged close to 75%, a level last reached in 2016. Shares in the trust have long been trading at a premium, but over the past year this has moved from 22.7% to 72.6%. Previously the management has warned investors that such a high premium can significantly increase the risk of capital loss — as there is a significant mismatch between the share price and the underlying value of the trust.
