Neil Woodford (pictured), manager of the highly popular Woodford Patient Capital investment trust, may seek another round of fund raising as the trust’s record breaking £800m of cash from its initial public offering has now been fully deployed.
Just eight months on from the auspicious launch of the star manager’s long term vehicle specialising in early stage and often unquoted companies, the trust is still trading on a premium [currently 5.2 per cent] but is down in terms of total return.
Performance of trust, sector and index since April 2015
Source: FE Analytics
It lost even more in terms of net asset value with a fall of 5.74 per cent, although still some way off the plunge in the FTSE All Share of 11.84 suggesting it has protected better in a period of downside than the index.
Performance of trust’s net asset value since April 2015
Source: FE Analytics
The trust’s board are exploring the idea to raise more cash in the year ahead due to current weak market conditions and belief by Woodford that there are some strong investment cases still around that won’t be there for ever, the company said today in stock market bulletin.
Mark Dampier , head of investment research at Hargreaves Lansdown, says new cash could be used to substantially increase the number of holdings in the trust by as much as 50 per cent.
“Neil Woodford believes there remain plenty of unexploited opportunities in early growth businesses. He has deployed the money raised by the Woodford Patient Capital Trust at launch more quickly than he originally anticipated - the fund is now almost fully invested with the remaining cash all committed,” Dampier said.
“The investment trust currently has 60 holdings and we would expect him to look to add 20 to 30 with any new money. New cash would also likely be used for further investment into the existing holdings when they wish to raise new cash to help with research and development.”
However, Dampier(pictured) warms that the issuing of new capital through a fresh round of fund raising could put pressure on the share price.
“It must be said, that if and when there is a capital raise, a new large tranche might cause the trust’s share price to fall to a discount in the short term. However, the fact Woodford believes the investment case remains so strong is good for the long-term investor, although there are no guarantees of future performance.”
“In my view, any new money raised should not fundamentally change the reasons for holding the trust for the long term - Woodford’s only reason to consider this would be the opportunities he believes are out there.”
“Long-term investors, who take the trust’s name literally and are patient, should be rewarded.”
Charles Tan, an analyst at Cantor Fitzgerald, says the effect of a new issue will all depend on the detail and advises current holders of the trust to watch for further details.
“If the new issue took place at around this level, one could argue that it’s accretive (as opposed to dilutive) to NAV, and that would help support the share price.”
“It’s a £800m trust, so obviously, raising £50m would probably have a muted impact on the rating, but raising £500m might cause investors to worry about fund size impacting future returns.”
“I think investors should pay attention to the fund-raise, but in an agnostic way, in that the success of the issue will tell us more about the state of the market and demand for the asset class.”
Stifel’s head of research Iain Scouller, who has had a sell rating on the trust since its rapid move to a double-digit premium back in June 2014, notes the share price has today fallen on the news.
“[The] market assumes [it] can buy new shares on around a 2 per cent premium to net asset value (NAV) versus the 6 per cent the old shares closed at last night.”
“We had it on SELL last June at 116p – moved to HOLD a couple of months ago – so we are not buyers at moment. It has a high weighting in biotech/healthcare which we are a bit cautious on at moment following a period of strong performance.”
Performance of index over 3yrs
Source: FE Analytics
Woodford Patient Capital has a strong focus on early-stage companies both quoted and unquoted within areas such as life sciences, healthcare, energy, utility, technology and particularly in firms with ‘disruptive’ technologies.
The fund has a pioneering fee structure with no base fee but a performance fee of 15 per cent of any excess returns over a 10 per cent cumulative hurdle rate per annum, subject to a high watermark.