Advertisement

Investors' patience wears thin for Neil Woodford

The star manager’s tactic of throwing a lot of mud at the wall and hoping some will stick hasn’t worked, says Max King.

888-Purplebricks-634
Purplebricks: a rare success story

The star manager's tactic of throwing a lot of mud at the wall and hoping some will stick hasn't worked.

It is three years since Neil Woodford's Patient Capital (LSE: WPCT) launched to considerable fanfare. The new investment trust had a very different strategy to that which dominated Woodford's Invesco funds. It would invest in early-stage, high-growth firms some quoted, some not with "outstanding intellectual property" that would deliver "exceptional long-term returns".

Advertisement - Article continues below

The aim of nurturing UK technology and biotechnology companies, despite the overwhelming US dominance of these sectors, appealed to patriotic investors, as did the innovative charging structure. Woodford was to take no management fee, only a performance fee of 15% of returns above 10% per annum. Investors flocked to the fund, whose target size was raised from £200m to £800m.

Further disasters are likely

Trading in the shares opened at a healthy premium to the 100p issue price, peaking in August 2015 at 119p. But disillusion has set in following a string of bad news. The shares fell to 73p, a 14% discount to net asset value (NAV), before bouncing a bit this week. The patience Woodford asked for three years ago is wearing thin.

An early casualty was Circassia, a pharmaceutical company whose share price collapsed following the failure of trials in the notoriously difficult area of allergy treatment. An investment in another pharmaceutical company, Northwest Biotherapeutics, was written off after it ran into financial difficulties and the shares were suspended.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

The shares of 4D Pharma, which hopes to develop treatments based on bacteria in the human gut, soared in 2015, but Woodford failed to take profits and shares have since slumped by 87%. Other companies formed to commercialise promising portfolios of intellectual property (IP) from academia, such as Allied Minds and IP Group, have also struggled.

There has been the odd success story the share price of online estate agent Purplebricks is down a third from its peak, but has still more than trebled since listing in late 2015. And there may be some real winners in the portfolio but more disasters are also likely.

More risk; less return

Woodford's response to adversity has been to increase risk. The limit on unquoted investments has been raised from 60% of net assets to 80% and the ratio of borrowings to net assets is close to the limit of 20%. The top ten holdings, mostly unquoted, account for 62% of the portfolio, 70% of which is in the UK.

Advertisement - Article continues below

Over half of the portfolio is in healthcare, mostly early stage biotechnology, and a further 12% in the technology sector. (That's not including Purplebricks, Atom Bank or Oxford Sciences Innovation an IP commercialisation fund which are classed as financials.) Woodford appears to have thrown a lot of mud at the wall in the hope that some of it will stick rather than having made focused investments based on detailed, expert analysis.

This stands in stark contrast to Syncona (LSE: SYNC), the result of the merger of Wellcome Trust's investment arm with the Battle Against Cancer Investment Trust. After just a year, this has already met significant clinical success and the shares have risen 50%. It shares just one investment with Patient Capital, though its life science investments have, so far, all been in the UK. With a focused portfolio of illiquid, high-risk investments, imprudently financed with debt, Patient Capital's shares could fall a lot further. It's not too late to switch into Syncona.

Activist watch

Consumer-products group Newell Brands, the company behind Sharpie markers and Rubbermaid plastic containers, has reached an agreement with activist investor Carl Icahn to appoint his four suggested directors to the board.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

This is a shrewd move, says Sarah Halzack on Bloomberg's Gadfly column Newell now has "some powerful new ammunition" with which to fight activist fund Starboard Value, which wants to dump the company's entire board, claiming "management missteps have hurt financial performance". It can "make a convincing case to shareholders that it is plenty open to fresh ideas and outside help". However, shareholders are still "rightly looking for more evidence Newell doesn't need Starboard's help", says Halzack.

Short positions a new way to bet on start-ups

Chancellor Philip Hammond proposed a new kind of higher-risk Enterprise Investment Scheme (EIS) in his Spring Statement, says Kate Beioley in the Financial Times.

The new type of EIS fund, which is currently under consultation, could offer one of four different kinds of tax relief, including allowing people to write off parts of a capital-gains bill (for example, from the sale of a property) by reinvesting it in an EIS fund, or letting investors receive dividends from EIS companies free of tax, after holding them for a certain period. In return, the fund would have to target "knowledge-intensive companies" early-stage firms with high R&D spending.

Advertisement - Article continues below

The world's first energy-storage fund will list in London later this month, reports Bloomberg. Private-equity firm Gore Street Capital is looking to raise £100m, with the fund set to invest in large-scale batteries. The Gore Street Energy Storage Fund is likely to follow a similar model to other clean-energy listed vehicles in the UK, such as Bluefield Solar Income Fund and Greencoat UK Wind; these funds use the so-called "yieldco" model, which pays dividends to shareholders generated from electricity sales. The firm is targeting a 7% dividend yield, and plans to invest in between 10 and 13 projects within 18 months.

The fintech trust spun out of the Rothschilds' RIT Capital Partners has missed its IPO (initial public offering) target, reports CityWire. Augmentum Capital floated last week, having raised just £94m of its targeted £125m. Both RIT and the management team at Augmentum ended up putting more into the IPO than expected.

Advertisement
Advertisement

Recommended

Visit/investments/funds/neil-woodford/600717/woodford-investor-your-first-payment-is-coming-soon
Neil Woodford

Woodford investor? Your first payment is coming soon

Private investors left stranded by the collapse of the Woodford Equity Income fund will soon be getting at least some of their money back. But they wi…
28 Jan 2020
Visit/520127/neil-woodford-rides-again
People

Neil Woodford rides again

Neil Woodford’s speedy descent made Icarus look like a slouch. Many thought he would now be spending more time with his horses. He’s actually plotting…
1 Jan 2020
Visit/517084/517084
Neil Woodford

Neil Woodford: no silver lining for his investors

Neil Woodford made every mistake it is possible to make as a money manager. And his investors have been stiffed. But however wrong it all went, Woodfo…
24 Oct 2019
Visit/509827/neil-woodford-fund-managers-and-the-systemic-risk-to-the-financial-system
Neil Woodford

Neil Woodford, fund managers, and the systemic risk to the financial system

The consequences from the Neil Woodford debacle aren't limited to his fund's investors. He and his ilk could pose a systemic risk to the financial sys…
27 Jun 2019

Most Popular

Visit/economy/uk-economy/601427/covid-bounce-back-loans-and-inflation
UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020
Visit/investments/commodities/601433/commodities-possibly-the-biggest-opportunity-in-todays-markets
Commodities

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020
Visit/investments/commodities/gold/601444/these-seven-charts-show-exactly-why-you-must-own-gold-today
Gold

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020