It is understandable, given the fact that he runs more than £33bn across his Invesco Perpetual funds, and is generally regarded as the best fund manager in the business. Woodford will be replaced by fellow FE Alpha Manager Mark Barnett, but in spite of his growing reputation, it is very much a case of the master and his apprentice. At the time of writing, our latest poll shows that almost one-third of FE Trustnet readers are ready to ditch Woodford’s two income funds as a result of the news.
Apart from the obvious impact it could have on Invesco Perpetual and investors in his High Income and Income funds – both of which have the coveted five crown-rating – his decision has other far-reaching consequences.
As FE Trustnet has already highlighted, investors in his £1.4bn Edinburgh Investment Trust reacted negatively to the news, pushing the closed-ended fund’s 6 per cent premium onto a discount. This resulted in the share price falling 4.48 per cent yesterday, and a further 1.75 per cent today.
The next major concern is what impact the outflows could have on the stocks Woodford is invested in, many of which are household names that investors approaching retirement depend on for a strong and stable income stream.
"If there were significant and sustained outflows [from his funds], then that would put real downward pressure on the stocks he holds," said Rowan Dartington’s Tim Cockerill.
Cockerill points out that if the money came out of his funds and just followed him to his new company, it would have little impact as he may buy the same stocks. However, details of Woodford’s new venture are non-existent: for all anyone knows, the FE Alpha Manager could be set to take on a small cap or even global mandate.
Whatever his intentions, the "downward pressure" Cockerill refers to is already affecting the performance of the manager’s favourite holdings as investors anticipate mass outflows.
For example, the share prices of the likes of BAE Systems, Capita, Imperial Tobacco and G4S – all of which feature in Woodford’s £13.8bn Invesco Perpetual High Income fund – fell sharply following the announcement of his departure.
Capita is one of Woodford’s biggest off-benchmark bets and is his 10th-largest holding, which with a market cap of £6.5bn sits outside the top-50 largest companies in the UK. It fell more than 3 per cent yesterday.
Performance of stock over 1 month
Source: FE Analytics
The manager has a hefty 4.06 per cent of his fund in the outsourcing company in his High Income fund, which translates to £553m worth of shares and means that Woodford owns 8.5 per cent of the business in that fund alone.
Woodford holds the stock elsewhere as well, though not necessarily in the top-10; this could therefore put significant pressure on the stock if mass outflows do follow yesterday’s announcement.
What about the manager’s largest holdings, which are typically blue chip multinationals? Could they weather an exodus from Woodford’s flagship vehicles?
His two biggest positions in his Invesco Perpetual High Income and Income funds are GlaxoSmithKline and AstraZeneca, both of which are popular with pension investors who want the reliability of the companies’ dividend to provide a steady income.
If those were to fall, it would have a major impact on a huge number of investors across the UK and the world.
He holds £2.1bn worth of shares in Glaxo in those two funds; however, as the company has a market cap of £76bn, this equates to just 2.8 per cent of the business. He also owns £2bn worth of AstraZeneca shares in his two funds, which adds up to a 5 per cent stake overall.
The majority of experts agree that possible redemptions from his funds are unlikely to have too much of an impact on these behemoths, though.
Rival David Taylor, who manages the five crown-rated Chelverton UK Equity Income fund, says demand for these stocks will not go away.
"There will be a bit of share price movement, but if you think about it logically, if £500m were to come out of Woodford’s fund, investors are going to look to invest that money into something like Artemis Income and those managers are probably going to be buying the same thing," Taylor said.
"That’s why you can’t jump to too many conclusions. Everyone has been saying: 'Oh no, this is going to be catastrophic.' However, that money is going to re-appear in the UK Equity Income sector. You have to concentrate on the net effect," he added.
James Sullivan (pictured), manager of CF Miton Special Situations, agrees with Taylor. He doesn’t think Woodford’s blue chip favourites should come under too much pressure, as they’re big enough to handle even billions of pounds worth of outflows.
He agrees that a lot of the money coming out of the fund will be going into other UK Equity Income funds, which themselves are likely to be heavily invested in large cap defensives.
"If you’re a holder of Glaxo, I wouldn’t say there is anything to worry about – particularly as Barnett himself is a big admirer of the company," said Sullivan, who holds Invesco Perpetual UK Strategic Income across a number of his portfolios at Miton.
"If there are massive redemptions, he will have to trim everything otherwise Glaxo will end up making up 40 per cent of the portfolio, but the company is big enough for it not to have too much of an impact on its share price."
"Glaxo has a share buy-back policy in place, which will give it some breathing space anyway," he added.
However, while Woodford’s largest holdings tend to be multi-billion pound companies, he is also known for investing in smaller, lesser-known stocks further down the market cap scale.
When asked whether mass outflows from the funds could impact Woodford’s favourite smaller companies, Sullivan was more concerned.
"Certainly in the lower reaches of the market, yes," he said.
"Woodford is well known for holding some investment trusts, including some with a litigation and Russian focus. They’re quite small and illiquid trusts, and so he’s a major shareholder even though he has a small weighting."
"If Barnett doesn’t want as long of a tail in the funds as Woodford and these companies go, then you’re going to see a reaction. That’s not to mention the possibility of outflows, which would make him a forced seller."
"Liquidity still isn’t what it was pre-Lehmans, and so this would have to be managed very carefully," he added.
Small cap companies and trusts that Woodford currently holds include IP Group, which Invesco Perpetual owns 28.7 per cent of, as well as the Raven Russia and Crystal Amber ITs, which the firm owns around 30 per cent of. Invesco also owns 38.9 per cent of Burford Capital.
The Crystal Amber trust is listed on the FTSE AIM index and has a market cap of just £102.7m, meaning Woodford is automatically a significant shareholder.
Our data shows that the trust appeared untroubled in light of yesterday’s announcement.
Performance of trust vs index over 1yr
Source: FE Analytics
However Helal Miah, research investment analyst from The Share Centre, thinks that investors in some of Woodford’s favourite smaller stocks may have to re-evaluate their positions if he decides to start afresh in his new venture.
"When he sets up his new asset management firm, it is likely that he buys the larger stocks in the same proportion. However, he may not want the same exposure to some of his smaller holdings and may use it as a chance to try some new ideas," Miah said.
