Associated Press
Woodford's fund is a liquidity desert.
- Woodford's fund was a liquidity desert. But the below table shows just how big a pickle his investors are in.
- The table, from broker Louis Capital Markets, shows a column listing each stock's average trading day volume held by Woodford's fund.
- Woodford would need years to unload some of the holdings on public markets, as measured by the volume the fund held of daily trading on an average day.
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The meltdown of Neil Woodford's equity fund has highlighted the problems that arise when a big fund manager drifts out of investing in big, public stocks and into thinly traded, non-public, or unlisted companies.
Woodford, a former star portfolio manager and household name in UK finance circles, stunned market watchers on June 3 when the Woodford Equity Income Fund was clamped shut, preventing investors from withdrawing their money. Its assets under management sunk from about £10 billion ($13 billion) to about £3.7 billion ($4.7 billion). The UK's Financial Conduct Authority is being criticized for dropping the ball in missing the risks to investors, and Woodford says he is now trying to exit his positions.
The below table, which brokerage Louis Capital Markets in London sent clients last week, highlights just how hard that might be.
The table shows a liquidity desert
The first column lists the ranking of the company's spot in Woodford's fund. So the first listed name, RM2 International, was the 20th biggest holding in the Woodford Equity Income Fund.
The subsequent columns represent the percentage of the company the fund held, and the value of the holding. For example, Woodford owned 9 million euros worth of shares of RM2, a firm that makes and sells shipping pallets and other logistics services. At the time, Woodford held nearly half the company, or 49.7%.
Each stock's performance in the month ending March 31 is in the final column, (showing that Woodford's holdings were losing steam way before he shut in investors).
But especially shocking is the column showing the number of days' volume: Based on the average number of buy and sell orders each day, Woodford held a whopping 5,009 days' worth of the RM2's daily trades.
In other words, if Woodford wants to sell his holdings of RM2 on the public stock market, it would take at least 14 years, and that's assuming he was even able to unload 100% of the stock's average trading volume on each trading day.
Verseon Corp., a California pharma firm with a market cap of about $67 million, has an astonishing 86,670 days of daily trading volume. That's more than 237 years of daily selling to get out of that one.
"Clearly, he liked punchy bets in seriously illiquid stuff," analysts at Louis Capital wrote to clients last week.
Dozens of stocks in the 3.7 billion pound ($4.7 billion) fund have more than 100 trading days' worth of shares tied up in it. And those are just the ones that are publicly listed.
That means trapped investors might not see any of their money any time soon - some experts are guessing that big chunks of the fund might not be able to be sold until well into 2020.
See the chart below:
Louis Capital
Louis Capital
Louis Capital