There’s a paradox that has been profitable for many and painful for quite a few; 2017 has been a great year for most investment trust shareholders but an annus horribilis for two men who formerly ranked among the best fund managers in the world.
This raises important questions about what to do next for investors in Woodford Patient Capital (WPCT) and Worldwide Healthcare Trust (WWH) – both of which I hold in my ‘forever fund’. Most readers will be familiar with the mishaps that have afflicted Neil Woodford this year, so there is no need to rehearse them here.
What is worth pointing out less than three years after WPCT was launched is that this technology and start-ups specialist trust was marketed as a long-term investment, suitable for shareholders willing to accept higher risks in pursuit of higher returns – preferably on a 10-year view. For the hard of thinking, the trust’s title offers a clue.
So, much of the criticism that former high-flyer Woodford is now attracting is premature and unfair. He deserves credit for full disclosure of his trusts’ underlying shareholdings, even though this has sometimes looked like washing his dirty linen in public.
Most importantly, Woodford continues to offer the active stock selection he promised, rather than simply hugging an index - even if that sometimes means suffering short-term underperformance. WPCT’s share price has fallen by 16% since launch in April, 2015, while its net asset value (NAV) has declined by less than half as much.
Woodford has been out of favour before and bounced back. Or, as they say in sport, form is temporary but class is permanent. I do not believe that the skill he demonstrated over more than a quarter of a century is likely to have disappeared after a couple of bad years.
Meanwhile, on the other side of the Atlantic, Sam Isaly – who was lead manager at WWH until last week – has delivered similarly outstanding long-term returns but suffered a very different setback. Isaly is the latest example of a widespread backlash against men who are alleged to have abused positions of power in the workplace.
Several former colleagues claim that he harassed or intimidated them with inappropriate behaviour in the office, which is alleged to have involved pornography and sex toys. Isaly denies these allegations but OrbiMed, the company he founded, announced his retirement on Friday.
It’s a sad end to the career of this 72-year-old who overcame serious disability – he was the first student to attend Princeton University in a wheelchair – and built an £11 billion fund management company. Isaly has been at the helm of the top-performing £1.2 billion WWH trust since 1995 – and so has his co-manager, Sven Borho.
That continuity and the strength of the management team is more important to investors than lurid tales of individual misbehaviour.
Sarah Godfrey, a director at analysts Edison, told me: ‘While Isaly was the face of WWH, OrbiMed has a large team of 80 investment professionals, 24 of whom are PhDs or medical doctors, and this is of greater importance in the long term than whose name is over the door.’
Similarly, Simon Elliott, head of research at Winterflood Investment Trusts, pointed out: ‘We believe the impact of Isaly’s departure on the management of the fund will be minimal, given the depth of the investment team, the investment process and the continuity provided by Borho.’
He added that WWH's track record is enviable, having grown its NAV by 431.2% over the last 10 years, compared with a rise of 251% by the MSCI World Health Care Index.
So, despite recent setbacks and surprises, the reasons I invested in WPCT and WWH remain in place. The former hopes to gain from monetising innovation and the latter should continue to benefit from the fact that ageing populations spend more on healthcare.
This long-term investor will continue to hold WPCT and WWH, with the intention to buy more if prices fall.
Full disclosure: here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.