What is an equity income fund, and what happened to Woodford?

Administrators have announced they will close the Neil Woodford’s equity income fund, which has been suspended since June to protect investors after too many tried to withdraw their money.

Here is a look at what equity income is and what happened to Woodford:

– What is an equity income fund?

An equity income fund is essentially a syndicate of typically amateur investors who ask a fund manager to invest their money as a group into a variety of different businesses. They primarily make money by buying shares in companies that pay out dividends to their investors. Dividend-paying companies tend to be larger and more stable firms with secure earnings.

– How popular was Woodford Equity Income Fund?

Neil Woodford, one of the City’s most lauded investors, brought billions of pounds of investment into his fund. Reportedly valued at £10.2 billion in May 2017, Woodford’s was the largest on Hargreaves Lansdown’s Wealth 50 list of favourable funds. Investors included everyone from individuals to councils.

Woodford Equity Income Fund frozen
The Neil Woodford’s equity income fund was suspended in June (Woodford Investment Management/PA)

– What went wrong?

Cracks started to show in June when the fund was forced to stop investors from withdrawing around £10 million a day. The fund had fallen in size from £6.8 million to £3.7 billion in just a year, forcing it to sell liquid assets to pay back investors. Investors had long criticised Woodford’s heavy holdings in unlisted companies, which are more difficult to sell as they are not openly traded on a stock market.

– What happens next?

Investors, who have been on the edge of their seats for four months, can expect to recoup some money in instalments from the end of January. The listed assets will be split from the unlisted part of the business, with the less liquid unlisted part likely take longer to sell. Administrator Link Asset Services said it cannot predict when the remaining assets will be fully sold off.

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