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Why I’d dump Neil Woodford’s Patient Capital to buy this millionaire-maker investment trust

Since its launch in 2015, the £653.3m shares in the Woodford Patient Capital Trust (LSE: WPCT) have lost 21%. 

For some comparison, over the same period the average fund in the IT UK All Companies sector has added 34%. That’s a performance gap of 55%!

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Today, I’m going to look at the firm’s performance over the past three years and explain why the shares have lagged peers. I’ll also be looking at a trust that I believe could be a better buy. 

Long term investing 

When Neil Woodford launched Patient Capital, he did so as a protest against the rest of the investment industry, which he believes is too short-termist. Patient Capital was founded to invest with a long term outlook and not be constrained by the City’s performance obsession. 

Three years on from launch, Neil Woodford believes it’s still too early to judge the trust’s performance record. In a recent meeting with City analysts, he declared: “I could not be more confident that we will deliver on what we said three years ago when we launched Patient Capital. There has been quite a lot of commentary and the focus of that has been misjudged. We said we would deliver over a three to five-year period and we have only just got to the three-year point.

The problem is, Patient Capital’s short life has been dominated by high profile failures. Its most significant holding, shares in American biotech firm Prothena (at one point Woodford owned a third of the company), slumped 70% in April after it decided to discontinue the development of its lead drug. Shares in Allied Minds have also fallen following the writedown and disposal of its subsidiaries. These failures have eclipsed the smaller successes the trust has been able to achieve. 

As Patient Capital’s record shows, investing in early-stage companies is a tricky business. It’s virtually impossible to tell which businesses will succeed and which will fail.

This is why I’d avoid Woodford’s offering. Even though the star fund manager is confident in his stock picking abilities, I’d rather own an investment trust that holds already established businesses. EP Global Opportunities (LSE: EPG) is the perfect example. 

Global value 

The investment team at EP is on the lookout for undervalued investment opportunities around the world. The trust’s investment universe isn’t restricted. It can, and does, invest across the globe, giving investors exposure to economies they wouldn’t usually consider. 

Today, around 18% of net assets are invested in Japanese equities and 14% in the United States. Pharmaceutical giant Roche is the largest holding and healthcare is the most substantial sector exposure (18%). 

EP is globally diversified but what about its performance record? Well, since its inception (15 December 2003) EP’s net asset value per share has jumped 330% — including reinvestment of dividends. This performance track record, coupled with EP’s global equity exposure and exposure to the pharmaceutical sector, is enough to convince me that it’s a better buy than Patient Capital trust. 

My view is that, over the long term, EP will provide better, more consistent returns for investors without the additional risk of investing in start-up businesses.

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Rupert Hargreaves owns no share 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.

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