It has been a lousy year for Neil Woodford’s much-talked-about Woodford Patient Capital Trust (LSE: WPCT). Thanks to a number of setbacks, shares in the trust are down by around 6.6% this year and down approximately 19% since its launch in 2015.
The latest and most high profile setback for Neil Woodford and his team came at the beginning of November when US hedge fund Kerrisdale published a report stating that the primary revenue generating drug of the trust’s top holding, Prothena would fail, triggering a precipitous share price fall of up to 80%.
Prothena accounts for around 15.6% of Woodford’s portfolio, so the trust’s performance is highly correlated to the performance of this biotech. Unfortunately, year-to-date shares in Prothena are down around 25%, and Woodford’s reputation has suffered as a result.
However, the star fund manager continues to support the company and believes that important test results for the flagship drug NEOD001, which are set to be published next year, will help his investment case.
Woodford believes that the market is too focused on the firm’s failings, rather than its successes. Indeed, in a recent investor update the fund manager commented: “Despite a lot of positive, reassuring information across a range of the company’s late-stage and earlier-stage assets, the market appears to have focused on a delay in its Vital phase III trial for NEOD001…although short-term share price weakness can be frustrating and may feel unsettling for some investors, it cannot change the outcome for this business now.“
Strength in diversification
Even though Prothena is the Patient Capital Trust’s largest holding, it’s not the only holding. As well as this biotech, the third largest holding is online estate agent Purplebricks and only four of the top 10 holdings are publicly traded.
Still, in many ways, trying to predict what the next year holds for the trust is a waste of time. It was founded on the idea of patient capital, in other words, long-term bets on private companies that have the potential to generate enormous returns. Neil Woodford has an excellent track record in this arena, so I believe that over the long term, his investments will product results for investors.
That being said, Patent Capital might not be suitable for all investors because of its exposure to early-stage, unquoted businesses. A huge number of early-stage businesses fail, so it’s more than likely that one or more failures will hit the portfolio in the years ahead. These losses should be offset by successes in other areas over the long run, but there’s no certainty that this will be the case.
The bottom line
So overall, Patient Capital might make a comeback in 2018, but investors shouldn’t judge this investment trust on its short-term performance. Neil Woodford has an excellent long-term track record of picking companies to invest in so he should be judged on his performance over the next 10 years, not 12 months.
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