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Selling Woodford, Majedie’s fees and Dean vs Godber: Our best stories of the week

26 June 2015

This week the FE Trustnet team has been looking at a broker note that puts a sell rating on the Woodford Patient Capital investment trust as well as three trusts that have been run by the same manager for more than a decade.

By Gary Jackson,

News Editor, FE Trustnet

Another week has gone by without the Greek debt crisis moving closer to a solution, with another deadlock being seen in the ongoing negotiations between the country and its creditors.

European finance ministers will be meeting tomorrow to try and make more progress in how to deal with the situation, with German chancellor Angela Merkel saying the emerging gathering will be “decisive” in resolving the crisis.

Time is certainly of the essence: Greece has to make a €1.6bn payment to the International Monetary Fund on Tuesday or risk critical support being pulled from its beleaguered banking system.

Of course, this isn’t all that’s been happening this week so we’ve rounded up some of best stories below. We hope you have a fantastic weekend.

 

Should you already be selling out of the Woodford Patient Capital trust?

The Woodford Patient Capital investment trust has certainly had a high-profile start, being the second offering from Neil Woodford’s own investment house and raising £800m at launch – well above the £200m initially targeted.

Investor demand caused the trust to shoot up to a double-digit premium but this fact – along with its recent inclusion in the FTSE All Share and FTSE 250 indices – has caused Stifel’s Iain Scouller to put a ‘sell’ rating on it this week.

Performance of trust and sector since launch

 

Source: FE Analytics

“Given the long-term ‘patient’ investment style, we think the shares have risen too far, too soon partly for technical index-joining reasons,” Scouller said.

“Given the elevated premium and the technical index factor, which appears to have created demand for the shares, we think it is worth highlighting the expensive nature of the shares to investors at this early stage.”

However, Simon Elliott, head of research at Winterflood Securities, which is a broker for the trust, says the trust’s premium is to be expected and investors shouldn’t rush to sell. “Most people are taking a three-year view on this stock, not a three-month view. Woodford Patient Capital has got to be seen in that context,” he added.

“Neil Woodford is very passionate about this, it is a long-term thing and very much a legacy product as he is concerned. We would be very surprised to see an extended premium or discount and I think they would use the resources available to them to buy back shares if necessary.”

 

Reader request: Why is this leading UK fund twice as expensive as its peers?

Earlier this week the FE Trustnet team took a look at an issue that has been puzzling one of our readers: why the management charge on Majedie UK Focus is twice that of Majedie UK Equity.

When we asked Majedie, the firm pointed out that UK Focus is a ‘best ideas’ strategy that have a much more limited capacity than its fellow product and the higher management charge reflects this.

F&C co-head of multi-manager Gary Potter, who holds the concentrated fund, supports this fee structure: “Our standpoint is: price is what you pay and value is what you get. We like to focus on the value. I am at ease with groups charging more for such strong outperformance. I’m totally respectful of companies that want to place a higher charge on those funds that have scarcer capacity.”


 

Performance of funds vs sector and index since launch

 

Source: FE Analytics

Not everyone we asked was convinced though, with Investment Quorum’s Lee Robertson and Peter Lowman telling us: “Given that it’s a concentrated list the question might be asked why would you pay more for this strategy when within the All Companies sector there are fund management groups offering very similar investment approaches at between 0.65 and 0.75 basis points AMC and have delivered better performances over one, three and five years.”

 

Julie Dean or George Godber: Which UK manager should you choose?

This week saw the launch of Julie Dean’s TM Sanditon UK fund and this prompted us to take a look at whether investors should hold this fund or the popular CF Miton UK Value Opportunities.

Although Dean’s ‘business cycle’ approach differs to the value-based process used by FE Alpha Manager George Godber on the Miton fund, both managers have built a strong following and some investors will now face the choice of which fund to own.

We spoke with Whitechurch’s Ben Willis, who sold Dean’s former Schroder UK Opportunities fund when she exited the firm to buy the Miton offering, and he said he will be sticking with CF Miton UK Value Opportunities for now.

But he expects to see good things from Dean’s new fund: “She will have a lot more control at Sanditon and will have a lot more autonomy over her new fund. She will also have a stake in the business and one of the problems of joining a massive organisation is that there is a lot of red tape – so she is free of all that.”

“I wouldn’t be surprised at all if the fund got off to a very good start and attracted a lot of money.”

 

Three investment trust managers who have stood the test of time

Figures published by the Association of Investment Companies this week showed that almost half of trusts with a long enough track record have had the same manager for 10 years or more.

The longest-serving manager is Hugh Mumford, who has managed Electra Private Equity for more than 33 years. Household names are also in the list including James Henderson, who has been at the helm of Lowland since 1990, and Job Curtis, who has run the City of London trust since 1991.

In this article we took a look at three well known manager who have headed up their portfolios for over a decade, starting with Nick Train and the five FE Crown-rated Lindsell Train IT he has run since its launch in 2001.

Since launch, the trust has returned more than 400 per cent as well as establishing top quartile track records when it comes to annualised volatility, alpha generation and Sharpe ratio.


 

Performance of trust vs sector over manager tenure

 

Source: FE Analytics

Have another read of the story to see which other longstanding investment trust managers were featured.

 

How Lionel Messi helped the Artemis US Equity fund to outperform

Is this article, Artemis US Select fund manager Cormac Weldon explained how the profitability of video games has been boosted by the ability of players to purchase add-ons.

“For example, if you went to a store and bought the FIFA game in 2010, it cost $60 and the gross profit margin was 50.4 per cent,” the manager explained.

“On the other hand, if you download this year’s edition of FIFA 2015 directly over the internet, the margins are significantly higher.”

“Now about 20 per cent of people are choosing to download directly over the internet and when they buy it this way, they also buy extra content. In FIFA 2015 there’s an add-on called Ultimate Team, so if your team is struggling against relegation, you can buy Lionel Messi for half a season and all is good with the world.”

Weldon said the profit margin of the FIFA game now stands at 83 per cent and that the share price of Electronic Arts – which designs and publishes the game and is a top-10 holding in the Artemis US Select fund – has tripled over the past 18 months.

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