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Investors reject Woodford's call for more money
(Update) Volatile markets force star fund manager Neil Woodford to shelve plans for further fund raising for Patient Capital trust.
(Update) Woodford Patient Capital Trust (WPCT ) has postponed plans for a new share issue after investors rejected an appeal by fund manager Neil Woodford to back a further round of investments in early stage healthcare and technology companies.
Releasing the investment trust’s first annual results chairman Susan Searle said: ‘With the continuing uncertainty prevailing in markets, now is not an appropriate time to raise capital. The board will, however, monitor the situation and advise shareholders of any developments.’
This is a setback for Woodford who raised a record £800 million last year after the star fund manager excited investors with his vision of a low-charging, high performance fund backing British scientific innovation.
In January, having become fully invested ahead of schedule, the trust surprised investors in the midst of a New Year market meltdown with a proposal to raise more money and tap what Woodford claimed was a bigger investment opportunity than he had previously thought.
Despite the Citywire AAA-rated manager’s strong track record, that was a step too far and with many investors pulling money from other funds the appetite for a ‘C-share’ issue that could have undermined an already weak share price simply wasn’t there.
According to a survey by Woodford Investment Management just over half of shareholders in the trust said they were prepared to invest more money in its shares over the next 12 months and understood why the manager wanted to raise more funds.
However, a majority also told the company they did not understand what a C-share issue was, and were lukewarm about participating in the offer.
Low charge, no return
Today’s results show that from its launch in April until the end of 2015 its net asset value fell 2.6% to 97.38p per share, which compared well with the 7.5% decline in the FTSE All Share. This year, however, the situation has reversed with the portfolio down 8.8% compared to a 0.5% dip in the index.
Since listing at 100p the shares have fallen around 12% and trade at 88.5p, a 0.8% discount below the NAV, according to Numis Securities.
However, at the height of investor enthusiasm in August the shares peaked at 120p, a premium of 15% above the then NAV. The unravelling of the premium means that anyone who bought the shares six months ago has suffered a 22% capital loss.
There is some consolation for shareholders in that they have paid very little to Woodford for their investment. The trust levied an on-going charge of just 0.1% in 2015 and did not come close to the 10% portfolio return required for it to earn its performance fee.
In another surprise, investors will also receive a small 0.16p per share dividend as the company distributes excess investment income in order to retain its investment trust status.
That dividend is unlikely to be repeated soon as Woodford is reducing the amount of dividend-paying larger companies the trust holds and increasing the proportion of non-dividend paying start-ups.
The annual report discloses the initial 25%/25%/50% split between mid-large cap stocks, early growth companies and early-stage companies has shifted. Its investment policy is now to hold between 15-30% in both the larger and early growth categories with 40-70% in early-stage businesses.
It currently holds just under 23% in large caps, 27% in early growth and 53% in early stage firms, according to the Woodford Investment Management website. Sixty per cent of the portfolio is in publicly traded companies quoted on a stock exchange, with just over 40% in private unlisted companies such as British university spin-offs Oxford Nanopore and Proton Partners, which are harder to trade and more difficult to value but which Woodford believes have exciting potential.
In his manager’s statement Woodford urged shareholders to be patient, saying the fundamental performance of most of the trust’s holdings, such as biotechs Prothena (PRTA.O) and Vernalis (VER), had been better than expected, even if this was not reflected in their valuations.
‘The stock market is not well-endowed with patience, particularly in volatile conditions. Periodically, this manifests itself in share price weakness, especially in businesses with no earnings or dividends and relatively limited market liquidity, but therein lies the opportunity for patient capital to exploit,’ he wrote.
Its worst performing investment so far is Northwest Biotherapeutics (NWBO.O), the US cancer treatment specialist whose shares have been damaged by anonymous allegations of financial irregularities. Since 30 June its weighting in the fund has plunged from 4% to 1%. In response to pressure from Woodford the company appointed two non-executive directors last year who have overseen an inquiry, whose findings have yet to be published.
In a video on his company’s website, Woodford acknowledged that the current market was difficult but expressed his confidence that a more ‘discerning’ market would arise later this year.
‘We’re very pleased with the portfolio,’ he added. ‘It’s taken a bit of a knock in the short term which has been reflected in the NAV coming down in the short term but we’re very confident where it will be in the next three to five years.’
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