MENU

Can the Woodford Patient Capital Trust help you to retire early?

We all know that to retire early, you need to invest wisely for the future. With this in mind, I’m taking a look at two growth-focused investment trusts which could help you to build wealth over the long haul.

Neil Woodford

The Woodford Patient Capital Trust (LSE: WPCT) consistently ranks as one of the most popular investment trusts. It’s run by Neil Woodford, one of the UK’s best-known fund managers, and aims to invest in a mix of exciting, disruptive early-stage and early-growth companies, together with some of his high conviction mid- and large-cap ideas.

The fund specialises in investing young companies with strong intellectual property propositions, helping them fulfil their growth potential through the deployment of long-term patient capital.

It has in place an innovative fee structure that combines a very low annual management fee of 0.19% with a 15% performance fee on any excess NAV returns over a 10% cumulative hurdle rate per annum, which is subject to a high water mark. This structure aligns the interests of the fund manager with those of its shareholders and makes it a compelling fund pick for anyone looking to invest for the long haul.

Past performance

However, one major cause for concern for prospective investors is the fund’s dismal past performance. Since its inception in April 2015, it has delivered a total net asset value (NAV) loss of 16%, against the FTSE All-Share Index’s gain of 45% over the same period.

It’s still too early to tell whether its recent underperformance is a sign of things to come, given that the fund has had just over three years of operation — but certainly it has made a number of poor stock picks. Woodford suffered some high-profile losses from his biotech bets in Abaco Capital and Circassia, which more than offset gains from winning investments such as Purplebricks.

And following its recent underperformance, shares in the Woodford Patient Capital Trust currently trade at an 11% discount to its NAV.

Small-cap fund

An alternative trust for investors seeking exciting growth potential from innovative companies is the BlackRock Smaller Companies Trust (LSE: BRSC).

The fund’s recent performance is great, with it having delivered a total NAV return of 15% over the past year, against its benchmark performance of just 5%. This demonstrated the good stock selection made by its fund managers over the past year, with the fund benefiting from its exposure to pharmaceutical, biotechnology, financial and support service stocks.

The most significant contributors to its performance over the past year were Dechra Pharmaceuticals, Keywords Studios, Robert Walters, and Premier Asset Management.

Track record

Its longer-term track record is just as impressive, the fund having achieved very significant outperformance against its benchmark. In the 10 years to 28 February, the fund has delivered a total NAV return of 264%, against the benchmark’s gain of just 67%.

What’s more, BlackRock Smaller Companies Trust has a strong track record of growing its dividend, with 15 years of consecutive annual dividend increases under its belt.

Looking forward, however, I’m wary about the impact of uncertainty surrounding the UK economy, not least because of Brexit, given its heavy exposure to domestically-focused companies. And following recent strong interest in the fund, shares in it trade at a post-Brexit vote low discount to its NAV of just 8%.

Want To Retire Early?

Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.

The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?

Jack Tang has no position in any of the shares mentioned. The Motley Fool UK has recommended Keywords Studios. 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.