When master investor Neil Woodford launched a growth fund in April last year, loyal fans flocked to get a piece of the action. If he could deliver market-thrashing returns from staid blue chips, imagine what he might be capable of if he applied his skills to the early-growth and early-stage companies that were to form the majority of his new Woodford Patient Capital Trust (LSE: WPCT).
Unprecedented demand
Raising £800m at 100p a share, Woodford Patient Capital became the biggest investment trust launch in history. Such was the continuing demand after launch that the shares immediately began trading at a premium to net asset value (NAV). And In the first six months the trust issued a further 27m shares at prices of up to 117p, despite the NAV only ever getting as high as 105p.
In volatile markets this year, the NAV has fallen significantly — and the shares have fallen even further. The lasted reported NAV (on Friday) was 88p, while the shares are trading at 81p as I write, giving an 8% discount.
Patient capital
Despite Woodford emphasising the very long-term nature of the strategy in the literature of the trust — as well as in the name — the move from a hefty premium to NAV to a discount suggests that some investors have quickly become impatient or got cold feet.
Perhaps it hasn’t helped sentiment that Woodford has disposed of the trust’s smattering of familiar blue chip names in recent months — the likes of GlaxoSmithKline, AstraZeneca and Legal & General — to put more money into smaller companies. And there have been a few disasters among his early-stage and early-growth picks.
Faith
As of 31 May, Woodford Patient Capital’s top six holdings consisted of three unquoted companies, a Nasdaq-listed business and two London-listed companies — one in the FTSE 250 and one on the Alternative Investment Market (AIM). None of them are currently profitable.
The FTSE 250 firm, Circassia Pharmaceuticals (LSE: CIR), suffered a major setback a fortnight ago, announcing disappointing results from a phase III study of its flagship cat allergy treatment. The shares dived 62%. Even so, the company, which made a £66m operating loss last year, is valued at £280m, or 26 times sales.
Circassia demonstrates that investors need to have faith that Woodford won’t pick too many disasters in the higher-risk area within which the trust operates (although some are inevitable) and to trust his judgement on the intrinsic value of what are hard-to-value businesses.
AIM-listed Purplebricks (LSE: PURP) has delivered good news to date, but again is currently lossmaking (a £12m operating loss last year) and highly valued at 18 times sales.
This disruptive ‘hybrid’ estate agency, like so many of Woodford Patient Capital’s investments, is a potential game-changer in its area of business and could come to be worth considerably more than its current market value, if Woodford is right.
Time to buy?
Faith in Woodford — and patience — are prerequisites for buying into Woodford Patient Capital and now could be a fantastic time to invest. If Woodford delivers you’ll benefit not only from a strongly rising NAV from the current depressed level, but also a likely extra boost from a closing of the discount to NAV or even a move back to a premium.
