Professional investors move to snap up ‘cheap’ Woodford Patient Capital 

Three fund managers who invest in funds as part of their portfolios have been recently buying shares in Neil Woodford’s investment trust, Woodford Patient Capital.

The clue is in the name, but the fans of Neil Woodford who bought into his investment trust at launch four years ago have had their patience sorely tested.

Woodford Patient Capital's share price is down 19.1% since launch in April 2015, according to FE Trustnet. This is largely down to two factors, with the first being that the collective performance of the investments held in the portfolio have been sluggish. On a three-year view, the net asset value (NAV) of the trust has stood still, up just 1%. In contrast, the average UK all companies investment trust has delivered NAV growth of 26%.

Second, as a consequence of its pedestrian performance, the high premium on which the trust traded for around 18 months after its then record-breaking fundraise has completely vanished. The trust’s premium reached as high as 15% at one point, but a discount has been the norm for the past couple of years, indicating that some early backers have thrown in the towel.

But some professional fund buyers have of late been buying the trust, drawn to both the double-digit discount and signs of an improvement in underlying performance.

Seneca Investment Managers has re-entered the trust, having bought at launch and then selling when the premium became too hot. Peter Elston, chief investment officer at Seneca, says there is an “improvement in news flow” from the companies held in the trust. This, combined with the discount currently standing at 12%, were key reasons behind the increased exposure.

Similarly, Unicorn’s Peter Walls, manager of the Unicorn Mastertrust, views the discount as a good entry point. He says: “The old venture-investing adage that the lemons (companies you’ll lose money on) ripen before the plums (companies you’ll profit from) seems to hold true. While there may be more negative surprises to come, the attractive rating appealed to my contrarian tendencies and I established a position in the trust for the first time at the end of March.”

A previous move was made by Vincent Ropers, a fund manager at Wise Funds, who bought into Woodford Patient Capital 18 months ago. He says that since he purchased, the performance of the NAV has been “pleasing”.

He adds: “Some of the early-stage businesses held in the trust are starting to deliver, both in terms of growth and cashflow. We bought at the time when the trust was trading on a 13% discount, and the way we see it is that this is an opportunity to get access to a strong portfolio of up and coming businesses at an attractive price.”

Ropers adds that as the trust is widely owned by retail investors and as “every piece of news has an impact on the discount”, an improvement in underlying performance, should in theory, see the discount narrow over time – a double-whammy that will lift the share price.

On a one-year view, there are signs performance has been picking up. The NAV of the trust is up 11%, while the share price has gained 8.9%.

He adds: “We think the stage has been reached that if you look at the portfolio and pay attention to what is happening you will notice the growth is definitely coming through, and at some point the trust’s valuation will reflect this.”

For investors who bought on day one, Dzmitry Lipski, investment analyst at interactive investor, Money Observer’s parent company, agrees it is not the time to jump ship.

He makes the point that it is often forgotten the trust does not levy an annual management fee and Woodford has shared every bit of the pain with investors.

He adds: “Only when the trust performs well is the manager rewarded – the fund charges a performance fee of 15% NAV returns above 10% per annum with a high-water mark. This is pretty unheard-of in the fund management world, and Woodford deserves credit for this.

“Investors with the required patience must, however, fully understand this is a high-risk strategy. The manager invests in early-stage disruptive growth companies, taking high-conviction positions and holding them for the long term. It is not a company that should be compared to its peers,  but is instead one to tuck away for the long term in the bottom drawer.”

While professional fund buyers have been warming to Woodford Patient Capital, the star fund manager’s flagship fund – Woodford Equity Income – has been given the thumbs down by Morningstar. The analyst this week downgraded the fund from bronze to neutral, on the grounds of “persistent redemptions, underperformance and stock-specific issues”.

It added: “These 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. We are therefore lowering the strategy's Morningstar Analyst Rating to Neutral from Bronze.”

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Woodford patient capital

Why would anyone wish to invest there when one can own fundslike fundsmith equiry and linselltrain global equity


This one aged well

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