Rolls-Royce has been hit by 5 profit warnings over the last 2 years, making investors "frustrated with the company's inability to manage expectations effectively," Woodford says in a blog post.
Normally, Woodford has taken these upsets as a buying opportunity but he says: "November's very disappointing trading update has changed this view."
Rolls-Royce shares tanked 18% last month after the company said profits would be at the lower end of company forecasts.
The problems, which initially had affected the military aerospace and marine businesses, now appear to have spread to the core civil aerospace business. This has resulted in material downgrades to profit and cash expectations, and to such an extent that it is now likely that the dividend will be cut in 2016. This has shaken my confidence in the investment case and so the position has been sold across all mandates.
Woodford doesn't say how much the stake is worth but it's rumoured to be worth £232 million ($351.8 million), or 2.2% of the company, according to the BBC.
It's a big blow for Rolls-Royce. The fund manager has held Rolls-Royce stock in various capacities for almost 10 years now. And there were signs that the troubled company was just starting to get back on track, too.
Woodford rose to prominence as one of Britain's best-performing fund managers while in charge of the Invesco Perpetual Income fund, managing just over £10 billion ($15 billion). He left last year to set up his own firm, Woodford Investment Management.