MENU

Should you ditch Neil Woodford and buy this top-performing investment trust?

Photo: Woodford Funds. Fair Use.

Editor’s Note – 19/9/17: both the author and The Motley Fool apologise for the original version of this article, which mistakenly mentioned stocks that weren’t held by Woodford Patient Capital Trust in relation to its underperformance. Human error was at fault, and the article has now been corrected accordingly.

This year has been a particularly challenging one for Neil Woodford. He has come under sharp criticism from a range of investors for his lacklustre performance, with several of his funds delivering disappointing performance.

As such, many investors may be wondering if now is the time to look elsewhere for investment trusts to buy for the long term. Could this top-performing trust be worth buying ahead of Neil Woodford-managed funds such as the Woodford Patient Capital Trust (LSE: WPCT)?

A difficult year

Over the last year, the Woodford Patient Capital Trust has underperformed its benchmark, the UK All Companies index, by around 17.3%. In fact, it is down 3.2% on where it was this time last year. As such, it has been a relatively poor year for the trust at a time when a wide range of stocks, funds and indices have enjoyed a major Bull Run.

However, the nature of the trust suggests that over a relatively short-term timeframe it could struggle when compared to its benchmark. It focuses on early-stage and early-growth businesses which may have outstanding intellectual property, but require capital through which to develop. While they may have strong investment potential for the long term, their lack of positive correlation with market indices may mean there are years of significant under and overperformance. As such, a disappointing year for the trust may not be a fair reflection of its potential for long-term investors.

Further criticism

In the last year, the general performance of Neil Woodford-managed funds has not been as strong as many investors have come to expect. For example, he has been criticised for the performance of major holdings within some of his funds, such as AstraZeneca and Provident Financial.

Furthermore, his decision to sell GlaxoSmithKline and British American Tobacco has also caused some investors to become uncertain about his future performance outlook. Both stocks appear to offer sound forecast growth rates, and therefore some investors have been surprised that they have been sold in favour of other shares.

Outperformance

While the Woodford Patient Capital Trust has disappointed of late, the Troy Income & Growth Trust (LSE: TIGT) has surged 30% higher in the last three years. This means it has outperformed the wider UK Equity Income benchmark by around 7%. And with it trading at a small discount to its net asset value, it could offer good value for money for the long term.

With a dividend yield of 3.3%, the Troy Income & Growth Trust offers an inflation-beating income return. It holds a number of large, UK-listed income shares such as Shell and British American Tobacco. Therefore, it could benefit from a further weakening of the pound as Brexit uncertainty builds. It may also be able to offer defensive characteristics due to its geographical diversity on a company level.

Long-term outlook

While the Troy Income & Growth Trust appears to be worth buying, the Woodford Patient Capital Trust could also have investment potential. Neil Woodford has an excellent reputation which has been built up over a long period. He has not suddenly become a worse investor in the last year, but rather has experienced the same disappointment which ultimately inflicts all investors at some point in their investing careers.

As such, the trust and his other funds continue to have investment appeal for the long run. Indeed, with a discount of 5% to its net asset value, the recent poor performance of Woodford Patient Capital Trust could be an opportunity to buy, rather than sell.

Millionaire potential

Of course, finding companies that are worth adding to your portfolio is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could make a real difference to your portfolio returns. It could help you to beat the index and boost your portfolio returns in 2017 and beyond.

Click here to get your copy of the guide - it's completely free and comes without any obligation.

Peter Stephens owns shares in Shell, British American Tobacco, AstraZeneca and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.