Kate Marshall 10 June 2019
- Trust board responds to share price fall
- Operational performance of portfolio companies unaffected
- Investment trust structure facilitates discount
The board of Woodford Patient Capital Trust issued a short update this morning in reaction to the continued pressure on the investment trust’s share price – which has fallen 22% since the decision to suspend trading in the Woodford Equity Income Fund on Monday 3 June.
The board is pleased with the operational performance of its portfolio companies and continues to believe they have the potential to deliver attractive long-term returns. The operational performance of the Trust’s underlying investments are unaffected by recent events.
The chair of Woodford Patient Capital Trust, Susan Searle, added:
"The board is closely monitoring the situation and is engaging with its shareholders and advisers. Separately, the board is in regular dialogue with the portfolio manager. The board wishes to emphasise the long-term approach of the company and will continue to keep shareholders updated as necessary."
Why Patient Capital is different from Equity Income
Given that it was investments in small, unlisted businesses which caused the Woodford Equity Income Fund to suspend trading, you would be forgiven for asking why Patient Capital – which only invests in these kinds of businesses – continues to trade.
The answer is in the different structure of the two funds. As an investment trust, Woodford Patient Capital is a listed business in its own right. Its shares trade on the stock market like those of any other company. When there are more sellers than buyers, the shares will fall.
While that’s meant the share price has fallen painfully over the last week, it also means the fund has not had to sell any of its underlying investments to meet redemptions. There is no danger of a fire-sale and the underlying value of the fund’s assets (measured by Net Asset Value) is protected even if the share price falls. Investment trusts are suited to the kind of hard-to-trade, smaller companies that Woodford Patient Capital Trust invests in.
What does the suspension of Woodford Equity Income mean for Patient Capital?
While the suspension of Woodford Equity Income has damaged confidence in Neil Woodford’s expertise, and therefore the quality of his investment decisions, it shouldn’t have any direct effect on the day-to-day running of the businesses in which Patient Capital invests.
That means the Net Asset Value of the fund remains broadly unchanged. Given recent falls the shares are now trading at a significant discount to the value of the underlying investments.
However, investors should bear in mind that the price of the trust is likely to remain volatile in the coming weeks and months. The price could sink lower based on news flow relating to the wider Woodford Investment Management business.
We will continue to talk with Woodford and the regulator and make sure investors are kept up to date with developments, and any impact this might have on the Patient Capital Trust.