I don’t know whether fund management legend Neil Woodford was in favour of Trump or Clinton, or wished a plague on both their houses, and nor do I care. However, Donald Trump’s shock victory has given Mr Woodford something to celebrate, by applying much-needed balm to his Achilles’ heel.
Tragic hero
Woodford has an Achilles’ heel, you say?
Investors in his big name fund heroes such as Invesco Perpetual Income and High Income, or new eponymous vehicle CF Woodford Equity Income, may not have spotted it, but he does. The fatally exposed part of his investment anatomy is Woodford Patient Capital Trust (LSE: WPCT), an underperforming investment trust that threatens to undermine the myth of infallibility surrounding the great man.
The fund has had a rocky time since launching in April last year. After one year, Woodford waived his fee on the fund, as assets under management fell from £800m to £733m. Plans to raise additional capital were delayed, with the trust trading below its launch price of 100p. This sort of thing isn’t supposed to happen to Mr Woodford.
Mr 10 per cent
The trust targets early stage science, biotech and medical stocks, well outside his traditional comfort zone (as China proved to be for another fund management legend, Anthony Bolton, when he blundered optimistically in). Top holdings include antibody developer Prothena Corporation, Immunocore, online estate agency PurpleBricks, 4D Pharma and Allied Minds. These are a world away from CF Woodford Equity Income’s familiar line-up, which includes GlaxoSmithKline, Imperial Brands, AstraZeneca and British American Tobacco. There is some crossover, however, with Prothena figuring prominently in both (perhaps unfortunately, given recent patchy performance).
The fund was launched with ambitious talk of returning “in excess of 10% per year over the longer term“, which is so far embarrassingly unfulfilled. It is down 9% over the last year, when a bog-standard FTSE 100 tracker would have delivered growth of 9%. Interestingly, CF Woodford Equity Income has also underwhelmed lately, growing just 2.37% in the last year.
Patient’s virtue
Woodford Patient Capital has repeatedly popped up on the monthly investment trust ‘poor performer’ tables from investment trust analyst firm QuotedData, but last week it was suddenly a winner thanks to the shock Trump victory. It is up around 7% since then, while other biotech and healthcare funds have also rebounded sharply.
James Carthew, research director at QuotedData, says the fund made a significant bet on biotech and this had held it back for most of 2016:
“Stock specific problems, such as the failure of Circassia’s cat allergy drug, were compounded by a general aversion to the sector as the US election loomed and Hillary Clinton’s threats to curb drug prices seemed likely to be implemented.”
Capital stuff
Trump’s win removes that immediate threat, but Woodford isn’t completely out of the woods. Trump can cut both ways, as Carthew points out:
“His populist nature might mean that he weighs into a cause celebre like the EpiPen scandal. Price controls on established products may still feature at some point.”
Early-stage investing is very different territory for Woodford, and there is a risk that he has bitten off more than he can chew, as Bolton did in China. Those who bought the fund at a premium will be disappointed. Today it trades at around 95p, just below its IPO, and at a premium of just 0.6% to its net asset value. However, early-stage investing requires time and patience. Volatility is to be expected, and patient, capital investors who believe in Woodford should not panic at these early hiccups