The development of online brokers has made investment in asset-managed funds and ETFs more widespread. The freedom to invest in alternative pension funds was a major innovation at the time, and allowed Hargreaves Lansdown to attract 1.1m people to invest through its platform.

Loss of investor confidence

Until recently, Neil Woodford’s Patient Capital Trust was one of Hargreaves Lansdown’s favourite funds.

Hargreaves’ customers accounted for about 20% of all the money invested in Patient Capital. Despite the disappointing performance of Mr Woodford’s fund, Hargreaves supported him until the end. This is a loss of credibility from my point of view, and trust is central to this business.

Investor confidence (and a lot of money) has been lost in this case. Hargreaves’ customers, who hold £2.1 billion invested in WPCT, have lost about a third of their investment in the last month alone. I do not think that Hargreaves Lansdown’s reputation can recover from backing Woodford’s judgement through these troubled times  and I fear that investor confidence in the company might be lost forever.

My view

These two shares will now follow two different paths, in my opinion. I am much more optimistic about WPTC because the shares trade at a discount of the fund’s assets value, and if Mr Woodford leaves then the investors might return.

On the other hand, Hargreaves Lansdown is not cheap. The shares started trading at about £2 in 2007 and, at the current price of £18.80, this represents a performance of around 850% over the 12-year period or about 25% per year.

Despite the Equity Income Fund scandal and WPTC’s poor performance, Hargreaves Lansdown is still up by about 3% a year to date. With a current price-to-earnings ratio of 38.17, Hargreaves appears expensive and its dividend yield of 1.62% isn’t all that attractive, either.

What next?

The next earnings season in August promises to be interesting because Hargreaves has the highest revenue target in its history, with an expected turnover of £245m.

I don’t see how this objective could be achieved because the extent of the damage is not yet known, and this uncertainty might penalise the share price until then. The decision to cut fees, announced by the company’s CEO, for clients who have invested in WPTC reinforces this view. And, in the long term, the loss of investor confidence might well further depress the share price.

CORRECTION: The original version of this article incorrectly stated that “WPCT… regularly ranked at the top of  the Wealth 50 list”.  However, it has never been on this list.

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Jean-Philippe does not own shares in any company mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

When the news of the attack on oil tankers in the Gulf of Oman was announced on Thursday, the share price briefly reached the lowest point in the range at £5.23 before recovering quickly. This knee-jerk move, probably intended to trigger stop-loss protections, might signal a renewed buying interest by institutional investors.

The burning American response

Since President Trump’s decision to withdraw from the Iranian nuclear agreement of 2015, the US and Iran have been at odds with each other. The crisis has intensified since May 13, when four tankers were sabotaged off the coast of the United Arab Emirates.

In response, the US is increasing sanctions against Tehran and deploying military assets in the region.

Based on military intelligence, the US blames Iran for Thursday’s attacks by Norwegian and Japanese tankers.

Iran, which is suffering from economic sanctions imposed by the US, is suspected of preparing to resume its nuclear programme.

The latest developments with the recent attacks could lead both countries to the brink of war.

The rise of oil price might fuel BP’s share price

The price of crude oil has fallen by about 20% since its April peak, due to fears of a slowdown in the global economy caused by growing trade tensions between the US and China.

Following recent attacks, the West Texas Intermediate barrel is trading about 4% above the lowest of its daily range at about $50. These levels might seem attractive for fundamental demand traders in an attempt to hedge against growing geopolitical risks.

BP shares have been stable for three months despite oil prices digging a hole. Speculation of an increase in fundamental demand for oil could trigger a buying momentum for BP, in my opinion.

My fundamental view of BP

At the current share price of £5.37, BP is valued at about 14 times its earnings, below its US rivals Exxon Mobil and Chevron with a P/E ratio of about 17.

BP offers a dividend yield of 6% at the current share price, in line with its competitor in the FTSE 100 Royal Dutch Shell, and well above the US oil majors, with an average dividend yield of around 4.5%.

BP also appears to be cheaper than Royal Dutch Shell, which is trading near its historical highs. The BP share price has a margin of growth of about 12% before reaching its own previous top level.

On the downside, OPEC recently lowered its outlook for global demand. But since then a BP report has indicated that energy consumption growth is double the annual average, making analysts confident about oil companies.

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Neither Jean-Philippe nor The Motley Fool UK have a position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

While the market shares of traditional tobacco products are declining worldwide, British American Tobacco’s other activities in reduced-risk products – including heated tobacco and vaping pens – are expected to grow by between 30% and 50%. British American Tobacco also reaffirmed its confidence in the achievement of its annual objectives.

There’s no smoke without fire, right?

Well, not in this case. Okay, the stock price is about 20% lower than a year ago, but during this period we had a market consolidation in the second half of 2018. In fact, the evolution of the share price since the beginning of the year is positive with a gain of 18%.

This outperforms its nearest competitor, Imperial Brands, which also trades on the London Stock Exchange, whose share price has fallen by 16% a year to date. In the US, Philip Morris International grew by 16% over the period, slightly less than BATS.

The good performance of BATs in recent months might be a sign of a recovery, reflecting analysts’ optimistic expectations for the future.

New CEO might find a second wind for the company

Wednesday’s update of the group’s turnover is the first since the appointment of the new CEO Jack Bowles to replace Nicandro Durante who led the transition to vaping products but left the share price down by about 50% over the past two years and has been criticised for his poor communication to investors.

Mr Bowles, formerly the company’s chief operating officer, is a strong supporter of reduced-risk products and wants to “create a stronger and simpler business” in response to shareholder expectations.

My heated view

Analysts expect the company’s strong operational performance to last for the rest of the year, so Wednesday’s decline makes the stock more attractive in my opinion.

With a P/E ratio 11 lower than that of its main competitors, BATS is the best deal among the major tobacco producers (whose P/Es range from 12 to 16). The company also pays the most generous dividend, with a current yield of 7%, compared to an industry average of about 6%.

The recent recovery in the BATS share price is another sign of renewed investor interest that might create buying momentum above current levels.

The diversification, through the acquisition of stakes in companies, of tobacco majors such as Marlboro’s Altria and Imperial Brands into cannabis products provides access to a huge market of $17bn. Analysts anticipate strong growth in pharmaceutical cannabis products that could enable this industry to reach $150bn in annual revenues. I expect such an announcement would drive the BATS share price to sky-high levels.

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Jean-Philippe has no position in any company listed here. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Unlike Neil Woodford’s Equity Income fund, which was closed to new investments and withdrawals and lost 20% in value in June, his investment trust (Patient Capital) cannot have the same fate.

Closed-end funds are immune to withdrawals

Woodford Patient Capital Trust is a closed-end fund where funds are raised at inception with shares’ issuance as in an IPO. Like a company’s shares, closed-end funds trade on the stock market and Patient Capital is currently trading on the FTSE 350.

The valuation of closed-end funds is tangible and follows the value of their assets while the prices of their share is more volatile. Today, Patient Capital is trading at around 63p to £1, representing a 37% discount on its valuation.

The launch of Woodford’s personal fund in 2015 with great fanfare was a success, and attracted at its peak £15bn of investor money in 2017. The loss of confidence following poor performance and large investors withdrawals led to a decline in the fund’s shares.

Woodford is expected to leave, but what happens next?

Neil Woodford was a star manager at Invesco for 25 years, surpassing benchmark indices and surviving the dot.com bubble and the subprime crash.

Its recent poor performance and the subsequent closure of its equity income fund have forced Patient Capital’s board, in consultation with its broker Winterflood Securities, to consider Woodford’s departure. But what happens when a poor manager leaves a fund?

Depending on new hires and the reorganisation of the management team, Patient Capital – while keeping the same name – can be considered as a brand-new fund.

A revival for Patient Capital shares?

Usually, when star managers leave a fund, a massive withdrawal of investors follows, and the subsequent performance of the fund decreases. Famous examples include the departure of Richard Buxton from Schroders, which caused an exodus of £3.35bn.

But when poor performers leave the fund, the opposite also happens.

This chart (source: Adviser Investments) shows what happened to Vanguard Capital Opportunity Fund performance following a management change (indicated by the red dot) in 1998. Other empirical studies conducted by researchers at CASS Business School show that UK funds improve their performance after the departure of a poor manager by successfully reorganising the management team.

A good buy?

The current discount on the NAV makes an investment in Patient Capital a bargain, in my opinion. Bargain hunters could start buying at these levels and the planned changes at the head of the fund might make it more attractive to returning institutional investors.

Neil Woodford was a cheap manager because his fees were linked to his performance. On the downside, a new management could change the fee structure and make it fixed, but this could be easily compensated by the recovery in performance.

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Jean-Philippe has no position in any company listed here. The Motley Fool UK has recommended Woodford Patient Capital. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.