"Persistent redemptions, underperformance, and stock-specific issues, combined with the manager's relentless willingness to push the portfolio to its liquidity limit, have resulted in portfolio positioning that we consider extreme," Morningstar analyst Peter Brunt said in a note.

Morningstar awards gold, silver or bronze ratings to funds it considers strongly performing. A rating downgrade may deter investment in a fund. Morningstar cut the Woodford Equity Income Fund to bronze from silver last year.

Woodford, a former star manager at Invesco, launched the fund five years ago.

It has suffered from poor performance at a number of its holdings, including UK lender Provident Financial.

"The fund is managed so it can stay within its agreed liquidity limits and these are set conservatively so the fund can comfortably meet any redemption as they fall due," a Woodford spokesman said by email.

(Reporting by Carolyn Cohn; editing by Emelia Sithole-Matarise)