Neil Woodford’s billion-dollar baby turns four
By Dzmitry Lipski from interactive investor.
Late last month, Woodford Patient Capital turned four. Having weighed in at launch at £800 million, making it the second-largest UK investment trust launch ever after Smithson Investment Trust, according to the AIC, Woodford's middle child has had some high-profile teething issues along the way. Total assets today stand at just over £1 billion.
While it's still relatively early days for the strategy, next week's anniversary falls squarely in the middle of the patient, three-to-five-year time frame that Woodford has often referenced. So, it's an appropriate milestone to take another look at the strategy.
Staying power required
Investment trust IPOs have had a chequered history over the years, but the clue with Patient Capital has always been in the name, and we still think patience is absolutely key.
With this investment trust sitting on a double-digit discount, investors who came on board at launch will be nursing the double whammy of a widening discount and a falling share price – painful stuff. But now is not the time to abandon this strategy.
The trust is relatively well diversified in terms of the number of holdings – 93 at the end of March – but is very concentrated when it comes to individual positions. The top 10 holdings account for 56.9 per cent of net asset value (NAV), although this is not unusual for a Woodford portfolio. The five largest holdings are: Autolus (9.3 per cent), Benevolent AI (8.3 per cent), Oxford Nanopore (7.1 per cent), Atom Bank (6.9 per cent) and Proton Partners (6.2 per cent).
At sector level, healthcare accounts for 50.4 per cent of the portfolio, with the next largest sector exposures being financials at 20.2 per cent and technology at 15.4 per cent. Having no exposure to energy and mining stocks – which have been among the best performing sectors in the market – certainly hasn’t helped the trust’s performance.
Geographically, the trust is UK focused, with an allocation of around 77 per cent. Woodford has no restrictions on overseas holdings, but it’s telling that his next significant regional holding is the US at 18 per cent. As these companies evolve, the geographical profile of the portfolio may also change to become more global in nature, influenced by events such as overseas listings or as a result of changes to the capital value of a non-UK company.
No easy ride
However, with many of the holdings being high risk/ high reward unquoted companies, and with a gearing level of around 16 per cent, this was always going to be a racy holding – and the path was never going to be smooth. This is something that Woodford acknowledged from the get go, with an innovative charging structure.
It is often forgotten that this trust does not levy an annual management fee and Woodford has shared every bit of the pain with investors. 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 in the bottom drawer.
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