TheChek News Flow

- The story firstly appeared at Money China twitter account @money_china

Accelerating decline by flagship vehicle catches regulator’s eye

The size of Neil Woodford’s flagship investment fund has shrunk by £560m in less than four weeks as investors abandon the UK’s best-known portfolio manager following a sustained period of weak performance.

Assets in the Woodford equity income fund are down from £4.33bn in April to £3.77bn this week, a roughly two-thirds drop from its £10.2bn peak two years ago, according to Morningstar, the rating agency.

The accelerating decline has caused alarm among some of the fund industry’s most senior executives and is being examined by regulators as concerns grow about the outlook for one of the most recognisable names in UK fund management.

The Financial Conduct Authority declined to comment.

Investors have withdrawn £187m since the end of April, with more than half the outflows coming after Morningstar downgraded the fund from “bronze” to “neutral” last week. May represents the 23rd consecutive month when the fund has suffered redemptions, with an average of £10m flowing out of the fund every business day.

About £373m of the monthly decline is attributed to the weak trading performance of the fund’s underlying investment portfolio.

In an interview with the Financial Times in March, Mr Woodford admitted that he risked being “out of business in about two-and-a-half years” if he failed to stem investor withdrawals.

A Woodford spokesman said: “As evidenced this week, we continue to see the widespread enthusiasm for the large, global-facing businesses that dominate the UK stock market as dangerous from the perspective of valuation risk. It is why the fund is — and has been positioned for some time now — towards undervalued stocks woven into the very fabric of the UK economy.

“This broader market malaise in UK-quoted domestic stocks contributed to the fund’s underperformance over the past month. However, Neil continues to believe this area of the market, such as housebuilders and other consumer stocks, are profoundly undervalued and offer long-term potential returns,” the spokesman said.

Investor redemptions are proving problematic for Mr Woodford as he has struggles to keep his fund below a regulatory imposed limit of 10 per cent invested in unlisted stocks. These illiquid assets are harder to sell than listed equities, forcing Mr Woodford to devise more creative ways to rebalance his portfolio, including listing some stakes in companies on the Guernsey stock exchange.

The fund has also suffered strong underperformance and is down 8.25 per cent this month, far larger than the 2.5 per cent fall in the FTSE All-Share index.

Several of the fund’s largest holdings have been hit in recent months. Shares in Provident Financial, the doorstep lender that is the fund’s fourth biggest holding, dropped 5 per cent on Wednesday after the UK competition regulator opened an inquiry into its hostile takeover by Non-Standard Finance. Mr Woodford also invests in NSF and has been pushing for the deal.

Mr Woodford is increasingly relying on a small number of large institutional investor backers. Last week St James’s Place, the wealth manager that provides more than a third of the assets that Mr Woodford manages across his £10bn investment empire, told the FT it was closely scrutinising the stockpicker’s performance.

Kent County Council, another important client with around £250m invested with Woodford, said in March it was keeping his fund under review and would reconsider the relationship in a meeting on June 21.

One fund industry observer said Mr Woodford’s problems were yet to cause contagion. “I haven’t seen any evidence this is a wider industry issue, so it seems more likely to be limited to one particular fund that has had a number of problems recently.”

- China will not accept a trade deal that hurts its pride or sovereignty

Equities were mixed in Asia Thursday, while U.S. and European futures gained as investors continued to assess the global growth outlook amid heightened trade tensions. Treasury yields steadied near their lowest since 2017.

Japan’s stocks pared losses by the close in Tokyo, while shares fell in Hong Kong, China and Australia. In South Korea, they clawed back much of Wednesday’s slide. S&P 500 Index futures rose after the benchmark closed at the lowest since March. The 10-year Treasury yield was at 2.27% after falling as low as 2.21% Wednesday. The yield gap between three-month and 10-year Treasuries, often watched as an early signal of pending recession, slid to a 2007 low Wednesday. The dollar traded near a five-month high.

US After Hours KEYS +7.5%, VEEV +7%, VRNT +1.7%, TLYS -11%, PVH -10%, PANW -5% following earnings/guidance

Nikkei -0.29% Hang Seng -0.53% CSI -0.86% Shanghai -0.62% Shenzen -1.13%

Eur$ 1.1134 CNH 6.9269 CNY 6.9071 JPY 109.71 GBP 1.2633 CHF 1.0079 RUB 64.9812 TRY 5.9969 WTI$ 59.33 +0.88%

S&P +0.26% EuroStoxx +0.52% FTSE +0.24% Dax +0.39% SMI Closed

Macro :

- It Might Finally Be Time to Take ESG Bonds Seriously: Macro View

- Why Rare Earths Could Give China a Trade War Cudgel: QuickTake

Keep an eye on :

- ADS GY : Nike Sinks as Much as 4.3%, Breakdown Below 200-DMA

- ADP FP : Aeroports de Paris Says Romanet Reappointed as Chairman & CEO

- AIR FP : Top A320neo Buyer Opts for Pratt-Rival CFM’s Engine: B. Standard

- APTD LN : Aptitude Software to Sell Microgen to Moscow Bidco for GBP51m

- SPR GY : Axel Springer in Talks With KKR for Potential Investment (1)

- DMGT LN : Daily Mail 1H Revenue GBP724 Million, FY Outlook In-Line

- DLAR LN : De La Rue Sees Lower FY20 Operating Profit; CEO Steps Down

- DKSH SW : DKSH, EfpBiotek Sign Distribution Pact for Asia, Europe

- EOAN GY : EON Reaches Collective Bargaining Agreement For Innogy New Co.

- FGP LN : FirstGroup to Rationalize Portfolio, Starts Greyhound Sale

- HUR LN : Hurricane Energy Set for ‘Catalyst-Rich’ 2H, Berenberg Says

- UKW LN : Greencoat U.K Wind Placing Raises Gross Proceeds of GBP375m

- ISAT LN : Inmarsat Chooses Airbus to Build Three GX Satellites

- JMAT LN : Johnson Matthey FY Adjusted Pretax Profit 1.6% Above Est.

- NAT SM : World Confectionery Group Boosts Natra Bid to EU1/Share

- NTGY SM : Naturgy to Leave Main HQs, Cut Real Estate Costs: Expansion

- NOVN SW : Novartis’ Phase III Quartz Study QMF149 Meets Primary Endpoint

- OMV AV : OMV CEO Says U.S. Trying to Dictate Energy Policy to Allies: FT

- PNN LN : Pennon Full Year Adjusted Pretax Profit Beats Highest Estimate

- PPG LN : Plutus Powergen Says Performance is in Line With Expectations

- RCO FP : Rémy Cointreau in Talks With Brillet to Buy Maison de Cognac

- RNO FP : Renault's Senard Says Jobs and Nissan Will Be Safe in Fiat Deal

- RNO FP : Nissan CEO Saikawa Plans to Halve Pay Y/y This Fiscal Year (1)

- SAF FP : Top A320neo Buyer Opts for Pratt-Rival CFM’s Engine: B. Standard

- SAN FP : Sanofi Application for Ambrisentan Zentiva Withdrawn in Europe

- SIXH LN : 600 Group Sees Earnings in Line With Expectations

- TEL NO : Mahathir Queries Axiata-Telenor Merger on Job Concerns

- FP FP : Total to Tie Part of CEO, Top Managers Bonus to Emission Cuts

- VLTSA FP : Voltalia to Build and Operate Kenya Solar Plant for Alten

* Banca Farmafactoring Upgraded to Accumulate at Banca Akros