Well-known fund manager Neil Woodford branched out from his successful income-first style of investing in 2015 with the launch of Woodford Patient Capital Trust (LSE: WPCT), which is listed in the FTSE 250 Index.
The trust takes a long-term approach to investing in mainly UK-based early-stage firms, which Neil Woodford believes will go on to deliver attractive returns to investors over time. As you’d expect, the trust focuses on the fundamentals of investee companies, but it also aims to support businesses through to commercialisation and fulfilment of their long-term potential. To me, as an individual investor, ‘supporting businesses’ is a bit of an alien concept that has hitherto found no place in my investing philosophy. My relatively small investments in individual firms don’t usually prop up a firm’s business model, and my aim is for the company to support me financially, not the other way round.
Attractive potential long-term rewards
Indeed, the Woodford website admits that investing in early-stage companies means “the risks are undoubtedly higher than in the more mainstream investment universe.” Since the trust got going in the spring of 2015 the share price is down around 25%, suggesting that such risks have been biting. But the Woodford team is adamant that “when adjusted for these additional risks, the potential long-term rewards are extremely attractive.”
We don’t yet know if Woodford Patient Capital Trust will go on to perform well in the end, but we do know that by investing in it we can participate in a diversified range of early-stage businesses, which spreads the risk. One popular approach to investing in trusts and funds is to go for those that are underperforming based on the theory that they could be tomorrow’s winners and have their time in the sun. If Woodford is picking badly, he’ll be learning fast. If he’s unlucky, statistically he’ll likely be luckier down the road!
I think we can take diversification even further by mixing a trust like this with shares in individual firms. Woodford Patient Capital Trust invests in early-stage firms so why not hold shares in a more mature firm in your portfolio too, such as groundworks and engineering firm Keller Group (LSE: KLR)?
Trading well with a strong order book
Today’s full-year results from the firm show stellar progress. Revenue at constant currency rates came in 10% higher than a year ago and underlying earnings per share lifted 30%. The directors expressed their confidence in the outlook by pushing up the total dividend for the year by 20%.
Chief executive Alain Michaelis said in the report that the results were “extremely strong” in the region of Europe, the Middle East and Africa (EMEA), and “solid” in North America, “but disappointing” in the Asia Pacific region. However, he thinks that ongoing operational improvements, strengthened leadership and a market recovery should return operations in the Asia Pacific region to profitability during 2018. The firm’s order book stands at an impressive £1bn or so, and most markets remain robust with bidding activity “at a healthy level.”
There’s bound to be a large element of cyclicality in the firm’s activities, but Keller is trading well and the outlook is robust. I think the tasty-looking quality and value metrics make the firm well worth your research time.
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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.