Woodford’s Russian adventure shows how far his UK mission drifted
Funds has demonstrated how biased it had become in totally different directions
And so the thousands of investors trapped in Neil Woodford’s Equity Income Fund must wait another 28 days — at least — for it to reopen. On Monday, the fund’s corporate director told the City regulator that extra time was needed to sell holdings and deliver Mr Woodford’s promise of a “much more liquid portfolio”. Once this is done, the manager has insisted his fund will pursue “the same investment strategy . . . it will continue to demonstrate a strong and selective bias towards undervalued companies that are exposed to the UK economy”. But earlier on Monday, it merely demonstrated how biased it had become in totally different directions.
In its latest move to release cash, the Woodford Equity Income Fund sold its entire holding in Raven Property Group back to the company itself. For the still-suspended fund, as well as the smaller Income Focus Fund, it was a way to realise £26m, and took total holdings liquidated in the past four weeks to £459m, according to Citywire. For Raven, it was a chance to buy back and cancel shares, lifting its earnings per share by 11 per cent.
However, for Woodford fund investors, it was a reminder of how far the manager’s UK exposure has drifted: in this case, to Moscow, St Petersburg, and Nizhny Novgorod — as that is where Raven’s warehouse properties are located. It might be London-listed, but it is about as invested in the UK economy as Vladimir Putin’s favourite British politicians.
Nor is it the only Woodford holding with tenuous economic links to Britain. While the manager has core stakes in builders Barratt and Taylor Wimpey, his second largest is in litigation funder Burford Capital, where performance is uncorrelated to the economy or geography. As is that of insurance claims manager Redde.
His greatly increased holdings in early-stage life-sciences groups further weaken the “undervalued” and “UK economy” claims — and make “Equity Income” a complete misnomer. Among his top 25 holdings are unprofitable non-dividend paying biotechs based in the US, such as unlisted Viamet and Nasdaq-listed Prothena.
Arguably, though, his financial holdings show most mission creep. Oakley Capital backs ventures in German education, Dutch e-commerce and Italian price comparison. Sabina Estates facilitates a more literal UK overexposure: it builds villas in Ibiza.
All of which raises two questions. First, why did Mr Woodford diverge so far from his UK value mandate? In the case of Raven, Sabina and some of the unlisted holdings, it seems to be an enthusiasm for working with Anton Bilton, co-founder of the first two and backer of the firm that sponsored listings for several others. Second, why did the Woodford fund continue to be marketed, named and — until March 2018 — officially classified as UK Equity Income? Hargreaves Lansdown, the fund platform that has 130,000 clients trapped in the fund, once warned: “Fund sectors should only be seen as a rough guide to what a fund does and are no shortcut for looking under the bonnet. For too many, that bonnet — like the fund — has remained closed.
Telit: scot-free on Cats
Telit Communications, the “internet-of-things”hardware supplier, just got off scot-free, writes Kate Burgess. On Monday, the London Stock Exchange announced it was fining the Israeli-Italian group £350,000 for breaching Aim admission rules — but then waived the fine in its entirety.
The LSE had denounced the Telit board after it revealed a previously undisclosed US indictment against ex-chief executive Oozi Cats under the equally slinky moniker “Uzi Katz”. The watchdog waived the “scot” or fine because of the “real difficulties faced by the board and advisers in being able to a reasonably uncover information”. Really? Uzi Katz has only one more z than Oozi Cats and no glyphs or runes.
Aim, having made a big play for small company listings, talks hotly about ratcheting up the pressure to ensure directors hold to the best standards of governance and disclosure. Nominated advisers are encouraged to use corporate sleuths and forensic bean-counters to unearth past misdemeanours. The LSE has pledged bigger fines.
Yet the regulator has ducked the chance to show it really means business. True, Telit’s admission to Aim was 14 years ago, when it was advised by the now defunct broker Seymour Pierce, more than a decade after the indictment. And Telit’s board and advisers have since changed umpteen times. Imposing a large fine on the current board and shareholders might have been heavy handed. Nonetheless, waiving all sanctions sends the wrong message to future Aim bosses from more exotic non-English speaking stops on the road to Xanadu, where a conviction might be recorded in logographic and syllabic scripts. By letting Telit off scot-free, the LSE has done nothing to free Aim of its reputation for slack restraints.