Since the news broke that Neil Woodford’s suspension of his flagship Woodford Equity Income fund is to continue at least until December, investors have renewed their sell-off of his Woodford Patient Capital (LSE: WPCT) investment trust.
Since the announcement on 29 July, the shares have shed a further 16% of their value, though some of that will have been spurred by a short-selling attack from US short-seller Muddy Waters on one of Woodford’s key holdings, Burford Capital. Woodford Investment has seen its stake fall by £118m.
Selling
To further dent confidence, Woodford himself has joined the sellers’ ranks and has offloaded more than £1m in WPCT shares. Investors are critical of the delay in announcing the sale, which apparently took place between 3 and 8 July when the shares were in the 56p to 58p range. They’ve subsequently fallen to 42p.
The sale, which comes at a time when Woodford is being roundly slated for continuing to charge management fees on the suspended Woodford Equity Income fund while its investors can’t get their hands on their cash, was apparently to raise money to pay a tax bill. Having to sell shares to meet what is surely an easily foreseeable expense strikes me as poor personal finance management — in his position, I’d have made sure I had a few million in the bank to cover such things.
Management change?
Questions now hang over whether Neil Woodford is finished as an investment manager, and what shareholders should do about Woodford Patient Capital shares.
The first question, at least as far as managing the investment trust goes, is very much open. The board of Woodford Patient Capital is in talks with investment management companies “which may or may not lead to a change in the company’s management arrangements.”
Concerns from some quarters that the trust has come close to breaching its 80% limit on unquoted investments will, in my view, pile on even more pressure to dump Woodford.
Buy or sell?
As for what individual investors should do now, at 42p WPCT shares are on a whopping 48% discount to estimated NAV. Now, we don’t know what effect Woodford’s rebalancing of his funds might have on that, and it’s hard to be sure of accurate NAV values anyway when so much is invested in unquoted and volatile companies.
I would only make a long-term investment in Woodford Patient Capital if I wanted to invest in its underlying assets, as I would with any such trust. But right now, while all of Woodford’s investments are in turmoil, the company is only listing its top 10 holdings — and I’ve no idea what it will look like when things settle.
Short-term bargain?
But over the shorter term, I can’t help wondering if we’re looking at an oversold bargain. The trust has said that, once it has reduced its gearing, it “intends to undertake share repurchases in order to seek to mitigate the discount to NAV” if it’s still high.
I don’t want to invest in WPCT for the long term as I don’t share its liking for unquoted ‘blue sky’ investments. And I don’t do short-term investments… but you know, I just might, just this once.