Should You Buy Woodford Patient Capital Trust PLC Or Back Allied Minds PLC, IP Group Plc And Imperial Innovations Group plc?

Can Neil Woodford win with the Woodford Patient Capital Trust PLC (LON:WPCT) against Allied Minds PLC (LON:ALM), IP Group Plc (LON:IPO) and Imperial Innovations Group plc (LON:IVO)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In this article, I pitch top fund manager Neil Woodford’s recently launched Woodford Patient Capital Trust (LSE: WPCT) against a possible alternative option in the shape of a mini-portfolio consisting of Allied Minds (LSE: ALM), IP Group (LSE: IPO) and Imperial Innovations Group (LSE:IVO).

What are the similarities and differences between the options? And which is likely to give you most bang for your buck?

Woodford’s target weighting for his Patient Capital portfolio is: 25% mid/large quoted companies; 25% early-growth companies (typically quoted but may be unquoted); and 50% early-stage companies (quoted and unquoted). Woodford is very much seeking to exploit the same cutting-edge-technologies space that Allied Minds, IP Group and Imperial Innovations invest in, except that he includes mid/large cap exposure.

Woodford anticipates initially holding 50-100 companies; potentially more as the portfolio matures. Imperial, IP and Allied have stakes in 98, 90 and 20 companies, respectively (a combined 208).

Geographically, Woodford is targeting at least 70% invested in companies traded on the London Stock Exchange or incorporated in the UK. An equally-weighted Imperial, IP and Allied portfolio (let’s call it IIPA, for convenience) would have about 67% invested in UK companies, via Imperial and IP, and 33% in the US, via Allied.

So, there are a number of broad similarities between Patient Capital and IIPA, with IIPA’s lack of any large-cap exposure perhaps being the most marked difference. The table below shows the blended IIPA’s top 10 holdings

Company Type Held by Weight
Oxford Nanopore Technologies Unquoted IP 12%
Circassia Pharmaceuticals Quoted (FTSE SmallCap) Imperial 9%
Spin Transfer Technologies Unquoted Allied 8%
SciFluor Life Sciences Unquoted Allied 6%
RF Biocidics Unquoted Allied 5%
Nexeon Unquoted Imperial 4%
hVIVO (previously Retroscreen Viology) Quoted (FTSE AIM) IP 3%
Veryan Medical Unquoted Imperial 3%
Cell Medica Unquoted Imperial 2%
Optio Labs Unquoted Allied 2%

The IIPA top holdings look a little scary against some of the familiar blue-chip names, such as AstraZeneca, that are likely to feature in Patient Capital’s top 10.

But how has the unconventional IIPA portfolio performed? The table below shows some compound annual growth rate (CAGR) numbers for IP and Imperial. (Allied joined the stock market less than a year ago, so isn’t included.)

  IP CAGR (%) Imperial CAGR (%)
Last 3 years 12.4 13.5
Since 31/7/06 (Imperial flotation) 5.3 2.7
Since 15/10/03 (IP flotation) 12.0 n/a

Now, what can we expect from Patient Capital. The trust’s investment objective is as follows:

“The Company will aim to deliver a return in excess of 10% per annum over the longer term. (Note: this is a target only and not a profit forecast and there can be no assurance that it will be met.)”

Woodford appears confident of success, though, because Patient Capital is charging no annual management fee. His remuneration will come in the form of performance fees, dependent on him beating the 10% per annum hurdle.

It seems Woodford believes he can do at least as well as that long-term 12% CAGR delivered by IP in the table above — and, what’s more, achieve it with 25% of his portfolio invested in less risky FTSE 100/FTSE 250 companies.

While Woodford is renowned for his blue-chip nous, investing in early-stage/early-growth companies isn’t unfamiliar to him. In fact, he actually holds Allied (4.1%), Imperial (1.3%) and IP (0.8%) in his mainstream Woodford Equity Income Fund.

Significantly, though, he has also put additional cash into a select few of the IIPA investee companies — presumably in the belief that his subset will out-perform the whole; otherwise, why bother? And the same goes for a number of other early-stage/early-growth companies he’s invested in that aren’t in the Allied, Imperial and IP portfolios.

Woodford will have some hard data on his stock-picking performance in this area of the market from past experience, and projections on what he might reasonably hope to achieve when combining this with a 25% weighting of his high-conviction large-cap picks.

As such, on balance, I tend to think that Woodford’s Patient Capital could offer a better risk-reward profile than the alternative IIPA portfolio. Patient Capital’s shares closed at 102p on the first day of dealing (21 April). I’ll note the IIPA prices at the same date — Allied (687.5p), IP (219.1p) and Imperial (490p) — and perhaps revisit the subject in the future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »