Neil Woodford just can’t catch a break. After several high profile failures in his portfolio last year, the pain has only continued in 2018.
This week, Woodford faced one of his most significant setbacks in history when shares in early-stage biotech firm Prothena collapsed following the failure of a major clinical trial. Woodford has long been a supporter of Prothena, even as the business has faced considerable criticism from other fund managers across the City and Wall Street.
Unfortunately, it now looks as if his belief in the business is misplaced. The shares lost more than two-thirds of their value in just one hour of trading after the disappointing news was announced.
This disaster might have gone unnoticed if it were not for the fact that nearly a fifth of Woodford Patient Capital Trust‘s assets were invested in Prothena (although recently it’s gone down to just 8%).
A string of failures
Prothena’s failure follows the collapse of Circassia, which suffered a failure in a cat allergy drug trial in 2016 and Allied Minds, which wrote off $146m worth of investments last year. Together, these two investments alone have cost the Patient Capital trust nearly £50m. The Prothena losses are likely much worse considering the size of the position
Still, following these losses Neil Woodford remains convinced that the portfolio will come good over time. Nearly two-thirds of the portfolio is invested in early-stage biotech businesses working on world-changing breakthroughs. The returns from just one of these start-ups could be enough to erase all losses for good.
But it’s not just at the Patient Capital Trust where Woodford is struggling. The Woodford Equity Income and Income Focus funds are also losing supporters.
Losing fans
Earlier this month, assets in his flagship Equity Income Fund dropped below £7bn for the first time to £6.6bn, far below the all-time high of £10.2bn although still a sizeable figure.
Investors have become disappointed by Woodford’s lack of returns since setting out on his own. For the three years to the end of February, his flagship offering returned just 3.9%, compared to the FTSE All-Share index return of 18.8%. High profile company failures, such as Capita and Provident, have weighed on returns, while his preferred investments, which are mainly income stocks, have struggled to win favour with investors.
Time to avoid Woodford?
The former star fund manager faces an uphill battle to rebuild his performance and reputation, but I don’t believe it’s time to give up on his equity income strategy just yet.
Over the long term, particularly in periods of market volatility, dividend stocks have proven themselves to be the perfect harbours in stormy waters, although in bull markets, performance tends to lag behind the broader market.
With this being the case, I continue to believe there is a place for Woodford’s equity income offerings in every portfolio. That being said, as I have written before, I am not interested in the Patient Capital trust due to its high-risk nature.
