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Woodford Patient Capital Trust - playing the long game

Dominic Rowles, Investment Analyst, reports on Woodford Patient Capital Trust's annual results for the year to 31 December 2018.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • NAV rose 6.9% while most of the world's major stock markets lost money
  • Share price fell 2.8% 
  • Many of the trust's investments made strong progress
  • Neil Woodford thinks his investments have lots of pent-up value waiting to be unlocked

The UK's home to some of the finest universities on the planet. The work they do could change our lives in more ways than we can imagine.

But it takes time to develop new products and there's lots of risk involved. That can scare off investors and make it difficult for new businesses to turn the ideas of our best and brightest into a commercial success.

Neil Woodford wants to change that. The Woodford Patient Capital Trust provides financing to early-stage businesses with the potential to change entire industries. As many aren't listed on the stock market, these opportunities would normally be out of reach to ordinary investors.

The trust's Net Asset Value (NAV) rose strongly over the year to December 2018, amid a difficult period for most major stock markets. This shows how differently unquoted companies (those that aren't currently listed on a stock market) can perform. It means the trust could provide useful diversification to a wider investment portfolio, though we think its higher-risk and specialist nature means it should only form a small portion.

We're encouraged to hear Neil Woodford thinks there's plenty more value in the trust's investments waiting to be unlocked. We think it's got great long-term growth prospects but it won't be a smooth ride. The trust's investments in early-stage, smaller companies, combined with its focus on specific sectors like healthcare, increase risk and could make the trust more volatile. Investors need to take a long-term, patient approach.

Transfer of unlisted investments

More recently in March 2019, a number of investments were transferred from the Woodford Equity Income Fund into the Woodford Patient Capital Trust, in exchange for shares in the trust. This was part of a plan to reduce direct investment in companies not quoted on the stock market from the Woodford Equity Income Fund.

Holding the investment trust's shares is a better way for the fund to have exposure to unlisted companies than owning them directly. And investors in Woodford Patient Capital Trust get additional exposure to some companies Neil Woodford believes have excellent prospects. The Woodford Equity Income Fund will also be a long term, supportive shareholder for the trust.

A strong year for the trust's investments

The trust's NAV rose 6.9% over the year in review but the trust's share price fell 2.8% as its discount to NAV widened. As at 15 April, the trust's discount to NAV stood at 16.2%. Its 12 month average is 12.0%.

Annual percentage growth
Mar 14 -
Mar 15
Mar 15 -
Mar 16
Mar 16 -
Mar 17
Mar 17 -
Mar 18
Mar 18 -
Mar 19
Woodford Patient Capital Trust n/a* n/a* -2.9% -11.6% -1.6%

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2019

*The trust launched in April 2015 so performance data prior to this date is unavailable.

One of the trust's strongest performers was biotechnology company Autolus Therapeutics. It's developing treatments which offer hope to sufferers of blood-related cancers like leukaemia, lymphoma and myeloma. Its share price has risen significantly since the trust's initial investment and the company listed on the US stock market in June 2018.

Oxford Nanopore made progress too. It's developing a new generation of DNA sequencing machines which are small, portable and affordable. They're also the world's only DNA sequencers that can deliver DNA analysis in real-time. In June 2018, the company's full year results highlighted a 240% increase in orders on the previous year. It was later boosted by an investment from Amgen, a world-leader in using human genetics to develop new medicines for patients.

It didn’t all go to plan though. One of the trust's biggest disappointments was biotechnology company Prothena. Its share price fell significantly in the first half of 2018 when a clinical trial failed. Woodford hasn’t sold his investment though. The company still has a pipeline of other drugs in development and plenty of cash on its balance sheet. He thinks the company has strong long-term growth potential.

There will always be setbacks when investing in fledgling companies. But overall, Neil Woodford is pleased with the progress his investments are making.

Performance since launch remains disappointing

The trust's lost money since launch in April 2015. The manager thinks political and economic uncertainty has put investors off backing companies that are earlier in their development. In his view it's just a matter of time before investors realise how much potential they've got.

The trust doesn’t carry an annual management charge. The manager's paid through a performance fee. This means his incentives are aligned with the interests of shareholders. Performance so far means a fee has not yet been charged, and the trust’s performance needs to improve a lot before it is.

The manager has the flexibility to use derivatives and gearing (borrowing to invest) which adds risk. Investors should read the latest annual report and Key Information Document for details of the risks along with the charging structure and gearing policy.

Key Information Document

More on this trust, including charges

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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