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Neil Woodford - now about the missing dividends and another thing

By Tom Winnifrith | Wednesday 3 January 2018


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


I gather that Neil Woodford's office has been busy dealing with questions relating to our most excellent series of articles and podcasts over Christmas. I have been made aware of its responses which are detailed but still leave me feeling incredibly unsettled on two major factors.

The first are the limits on the percentage of FUM that can be held in unquoted stocks. That is to say 10% at the Unit Trusts and 80% on Woodford Patient Capital (WPCT). The Woodford organisation is - quite correctll - insisting that it is underneath those limits. I am sure that it is for to breach would be very bad news indeed.

My question is of the lack of prudence shown by Woodford in being right up against his limits on the main Equity Income Fund and on WPCT. Given that Neil "Nomates but good value on an annual take-home of £7 million a year"Woodford knows that he has been suffering net redemptions for some months and also his - I am sure 100% correct - analysis that the wider market is due a correction ( which may well see a markdown of his quoted but not his unquoted investments) surely he should be building up a margin of safety by cutting is percentage unquoted exposure. But he has been doing the reverse!

This is not illegal in any way shape or form but my big question for Nomates is "is this prudent?" I fear that the answer is NO!

The Woodford organisation has admitted to some concerned investors that it has been transferring holdings between funds, that is shares in both listed and unquoted companies. The main transfers appear to have been listed stock from WPCT to the Unit Trusts and unlisted stock from Equity Income to WPCT. Once again I stress that this is 100% legal. Transferring listed stock should be easy. No-one is really going to argue that if shares are transferred at the mid price neither the buyer or the seller has been disadvantaged.

But what of unquoted investments. How should one value them? Especially when one party ( Equity Income) appeared to be a forced or distressed seller as it battled in the Autumn of 2017 - to keep its unquoted holdings below 10%. The Woodford organisation insists that valuations are agreed with the ACD, the compliance department and other external parties to agree a fair value.

But I wonder how much these parties know about individual unlisted investments and so how much they would argue the toss with Woodford himself and his suggested valuation for trade? Are the external parties accounting for the fact that the seller ( Equity Income) is a forced seller as surely that should see shares transferred to WPCT very cheaply?
If Woodford is to address this issue he needs to provide some worked examples of transfers from Equity Income to WPCT in the fall of 2017 showing which parties had input on the valuation and how it was achieved.

That would be the real transparency Woodford always claims he offers. If he wants to avoid such scrutiny he should only be disposing of unquoted stocks to third parties not shuffling them around between funds. Since he has been shuffling he now needs to show some clear case studies with documentation to demonstrate that WPCT has not been disadvantaged.

I have yet to see the Woodford Group answer the clear issues of Conflict of Interest relating to most members of WPCT's board.

Meanwhile I gather that a number of holders of the Woodford Income Focus fund were not paid the dividend on the due date of 29 December. The money simply did not arrive from Woodford. It is pretty scandalous that punters had to wait two months between the units going ex div and the payments being due to be paid. But for some unit holders not to be paid at all ( maybe it is all) just strikes me as, at best, rank incompetence.


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