Thursday 30 May 2019 2:43 pm | Updated: Tuesday 18 June 2019 1:56 am

Neil Woodford’s flagship fund drops £560m of assets in four weeks

Veteran trader Neil Woodford’s flagship fund has lost £560m in assets over the last month following a prolonged period of underperformance.

The Woodford equity income fund saw assets fall from £4.33bn in April to £3.77bn this week, according to data from Morningstar Direct.

Assets have more than halved from a high of £10.2bn two years ago as Woodford battles with investor redemptions.

Investors have withdrawn £187m since the end of April and around £373m of the asset drop is due to the poor performance of the fund’s investment portfolio, the Financial Times reported.

More than half of the outflows came after ratings agency Morningstar downgraded the fund from bronze to neutral earlier this month, which is the research group’s second lowest ranking, following “persistent” investor redemption requests.

The outflows have reportedly sparked the attention of the Financial Conduct Authority (FCA), which monitors “large funds where outflows have occured”. The regulator declined to comment.

However, analysts said Woodford has a strong track record in delivering returns.

Hargreaves Lansdown senior analyst Laith Khalaf told City A.M. “Woodford’s having a tough time at the moment, but his long term track record stretching back to the 1980s is still strong.

“He’s a contrarian, value investor, and like any active manager can be expected to endure periods of underperformance.”

Dzmitry Lipski, investment analyst at Interactive Investor, added: "Despite the recent underperformance and outflows, the manger is proving to be truly contrarian, by ‘sticking to his guns’ and taking steps in the right direction.

"While investors have been left disappointed about the fund performance, they should remember that every fund manager has stocks in his portfolio that can go through bad patches, and Woodford's picks are no different. Woodford has a history of successfully navigating through poor periods when his views and chosen stocks were out of favour for an extended period."

The fund manager has been forced to take “extreme” action to reduce the proportion of fund assets that are invested in unquoted or less liquid stocks in order to keep unquoted exposure below 10 per cent.

Woodford has listed some of his stakes in unquoted stocks on Guernsey's International Stock Exchange and swapped some unquoted stocks from the Equity Income fund to his Patient Capital investment trust in a bid to tackle the issue.

A spokesperson for Woodford 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 has contributed to the fund’s underperformance over the last month. However, Neil continues to believe this area of the market, such as house builders and other consumer stocks, are profoundly undervalued and offer long-term potential returns.”