Woodford asks for patience after performance disappoints

Woodford Patient Capital has been slow out of the blocks since listing on the main market almost two years ago, with its share price 13 per cent lower than at launch.

This trend continued in 2016 with the trust reporting a net asset value decline of 4.2 per cent.

Woodford, regarded as one of the best fund managers of his generation, had targeted returns of 10 per cent plus when the trust launched. He backed this conviction by putting in place a ‘no win, no fee’ charging structure.

Unlike rival trusts, Woodford Patient Capital does not levy an annual management fee. Instead it charges an annual performance fee of 15 per cent of any excess returns over 10 per cent, which is its target cumulative annual return.  Given that the target was missed, investors will not pay a performance fee.

Addressing investors, Woodford acknowledged that 2016 was a challenging year, but was keen to stress the long-term strategy of the trust, which invests in early-stage and unquoted companies mainly in the UK.

‘I understand that some investors may be disappointed at the net asset value progress thus far, and although I would have preferred to have been writing this review having delivered a positive return, it must be remembered that the investment strategy was never designed to deliver significant short-term wins,’ he said.
‘The original investment hypothesis remains in place. In fact, I believe it is stronger than ever. That statement may surprise those investors who have been eager to see an early return on their investment or those who are frustrated by the lack of net asset value progress seen thus far. To an extent, I share those emotions, but they are insignificant compared to the confidence and excitement that I have in the opportunity from here.’

While the portfolio today mainly sticks to the UK, in future years this may no longer be the case, as the board is seeking to remove the 30 per cent limit to non-UK companies. The board is also seeking approval to increase the maximum exposure to unlisted companies from 60 per cent to 80 per cent.

Woodford Patient Capital - analyst reaction  

Commenting on the trust’s results, stockbroker Killik said: ‘Returns since launch have been disappointing and some businesses in the portfolio have encountered problems; however, the strategy seeks to exploit long-term investment opportunities and there are clear encouraging signs of progress from a number of holdings reaching commercial and technical milestones, which suggests significant embedded value within this portfolio.

‘With the shares trading on a 4 per cent discount and over 20 per cent below the level at which a performance fee begins to accrue, we remain positive on the strategy offering exposure to a basket of innovative early-stage and early-growth businesses for investors able to take a long-term view.’

Laith Khalaf, senior analyst, Hargreaves Lansdown, stressed that although Woodford Patient Capital has started slowly for shareholders, the investment strategy should be viewed as a marathon and not a sprint.

‘There are few managers who can keep up with Neil Woodford over the full distance,’ added Khalaf.
‘The board is proposing a number of changes to the investment objective of the trust, which are designed to allow the manager greater flexibility to accommodate developments in the portfolio as the companies within it mature. These changes look sensible, and will allow the manager more freedom to hold onto companies no matter how large they grow, or where in the world their journey might take them.’


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