Woodford Patent Capital has hit markets with the full allocation of £800m of equity scooped up by investors backing his early-stage investing strategy with thousands left wanting more. This makes it the largest ever launch of an investment trust in the UK with the previous record set in 1994.
Before the launch of Woodford Patient Capital Trust, the biggest UK investment company new issue was Mercury European Privatisation, which launched in March of 1994 having raised £549million. This broke the record set just one month earlier by Kleinwort European Privatisation, which raised £481million. More recently in April 2010, Fidelity China Special Situations was the third largest UK investment company raising £460m.
Here we take a look at how these and another giant closed-ended fund have got on since investors handed over their cash in droves.
Fidelity China Special Situations (2010)
Those who participated in the initial public offering of this IT were backing the star manager Anthony Bolton’s track record and a Chinese stock market rallying hard after a tough period during the financial crisis.
Bolton had built up a highly enviable track record as manager of the Fidelity Special Situations fund – which he launched in December 1979 – but questions were asked about whether he would be able to replicate those returns in a different market.
Subsequently, and to the disappointment of investors, the net asset value of Bolton’s portfolio lost about a third of its value over the following 18 months.
Though the trust’s share rocketed to a double-digit premium, as a result of those poor NAV returns investors were hit by the so-called “double whammy” effect as its discount widened significantly. It currently trades on a 14.1 per cent discount.
Bolton was replaced in 2014 by Dale Nicholls after retiring from fund management and bringing the fund back in positive territory.
Since Nicholls took over the Fidelity China Special Situations investment trust in April 2014, the closed-ended fund has continued to rocket up, partly thanks to a bull run in Chinese stocks.
The trust has managed to stay ahead of the MSCI China outperform during the recent rally as well.
Performance of trust versus index since launch
Source: FE Analytics
It has a clean OCF of 1.46 per cent and a performance fee which most recently totalled up to 2.46 per cent. Gearing is 22 per cent.
Britannic UK Income (2001)
About £400m was raised for this trust back in the grim days after the “dot com” crash with a mandate to invest across bonds and equities with an eye for both capital growth and income.
It was part of the split-capital trust boom, a type of fund of funds, that some industry insiders have retrospectively called a ‘”a type of pyramid scheme.”
At around £400 million in August 2000, its assets fell to £168m by August 2002, a deterioration of nearly 60 per cent.
A large exposure to the shares of other split-capital ITs, which also saw their NAVs collapse following a torrid time, were to blame says Charles Cade, head of investment company research at Numis Securities.
“Most of the “splits” blew up in 2002. When it all collapsed you had a lot of cross selling. The quality of the assets deteoriated as demand for yield went up. A lot of these trusts just wound up shortly after.”
Mercury European Privatisation & Kleinwort European Privatisation (1994)
Just five years after the Berlin Wall fell, these trusts launched raising £549m in the case of Mercury and £481m for Kleinwort.
Both attempted to capitalise on the privatisation frenzy that had embraced Britain and Europe during the period but neither have stood the test of time, with investors forced to take their cash as the trusts were wound up. Privatisation lost momentum not long after and performance diminished.
The first to go was the Kleinwort European Privatisation trust which was still down in 1996 from its original price.
Mercury European Privatisation survived until September.2004, then known as the Merrill Lynch European Investment Trust when its market capitalisation stood at £370m and had been focusing on more traditional European equities.
Mercury World Mining (1993)
This trust, now Blackrock World Mining, has total assets of around £500m which is approximately the value of cash that flowed in when it launched back in 1993.
Our data goes back to 1995, over which time the trust has returned 360.05 per cent, significantly more than the average IT Commodities & Natural Resources trust, although it’s past five year plunge has been at a more rapid rate than the market.
Performance of fund and sector since 1995
Source: FE Analytics
Generally commodities have had a rotten time of late as investors have worried about a host of headwinds that amount to a trough in the ‘super-cycle” following the previous 30 year boom. Nonetheless, some have questioned if this trust may have to adjust its strategy.
Co-managed by Evy Hambro and Catherine Raw until recently, the latter has left following the worst 12 months in its 21-year history.
However, Cade says while it has had a bad few years, it may be a good time to buy.
“Clearly they had a bad year both from the market but also from poor risk management and disclosure.”
“Ultimately they have had a strategy to boost yield and with hindsight the risk was much greater than people expected. It is one of those vehicles that has had a torrid time but we like the management team and it is usually the right time to buy when it is out of favour.”
It has a OCF from July of a flat annual fee of 1.3 per cent although this will fall should the trust see its assets grow above £1bn, according to a statement from its board.
It is on a 12.1 per cent discount and has 13 per cent gearing.