Some people will follow star fund manager Neil Woodford anywhere, no matter where he roams. Until recently, they have been well rewarded for their loyalty. Woodford is fabled for his blue-chip dividend stock expertise, but lately he has branched into smaller and unquoted companies with Woodford Patient Capital Trust (LSE: WPCT), and the results have been less than happy. Is now the time to wave goodbye to his underperforming fund and seek out a proper smaller companies manager instead?
We do need another hero
Unlike Woodford, who said a very public sorry for his recent underperformance, BlackRock fund manager Mike Prentis has nothing to apologise for. While Woodford Patient Capital Trust is down 3% over the last year, his BlackRock Smaller Companies Trust (LSE: BRSC) fund is up a whopping 36%, which makes Prentis an unsung hero in my eyes. Some people just do not get the glory they deserve.
This success is no flash in the pan. Prentis has been running the trust since 2002, and over the last five years has returned an astonishing 165%, according to Trustnet.com. He is working in a buoyant sector right now but has still outstripped his UK smaller companies benchmark, which grew 133% over the period. Prentis is also co-manager of the BlackRock Throgmorton Trust, which has delivered almost identical performance figures.
BlackRock Smaller Companies is 100% invested in the UK and top holdings include CVS Group, Dechra Pharmaceuticals, Advanced Medical Solutions and Bodycote, which may be familiar to regular Fool readers. Many of these are listed on the FTSE 250 so its portfolio is not directly comparable to Woodford’s unquoted forays.
The BlackRock fund was launched way back in 1906 and currently runs to £595m, so it is not too unwieldy. Its performance record speaks for itself, and Prentis even manages to yield 1.69% a year from its portfolio of smaller stocks.
BlackRock Smaller Companies somehow trades at a discount to net asset value of -12.75%, astonishingly wide given its performance. As I said, Prentis is an unsung investment hero, which is not a problem Neil Woodford is ever likely to have. When Woodford Patient Capital Trust was launched in April 2015, such was the demand that is instantly traded at a hefty premium, which peaked at 15%.
Woodford at a discount
Today, the trust trades on a discount of -5.56%. This means that as well as seeing little or no growth, early bird investors have also taken a serious hit on that front.
Despite this, Patient Capital Trust is still the second most traded investment trust in the UK. Maybe that is due to the amount of people selling, I don’t know. Currently, the fund manages £787m, which is small beer by Woodford’s standards. He has proposed raising the maximum amount he can invest in unquoted companies from 60% to 80% of the trust. Now, I remain a fan but would be wary of following him even deeper into unfamiliar territory, especially when there are other managers who have shown they understand the terrain.
Mike Prentis is one, Giles Hargreave at unit trust Marlborough UK Micro-Cap Growth is another, returning 30% over one year and 152% over five. Past performance isn’t everything, but in this case, it is the deciding factor for me.
Has Woodford overstretched himself? He won't be the first big name investor to do so.
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Harvey Jones holds units in Marlborough UK Micro-Cap Growth, but has no position in any of the other shares mentioned. The Motley Fool UK has recommended Advanced Medical Solutions and Bodycote. 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.