I was surprised Thursday morning to see Woodford Patient Capital (LSE: WPCT) shares soaring 30%, as Neil Woodford’s demise has turned it into a bit of a pariah in the investment trust world.
We’d been told on 15 October that Woodford was departing from managing WPCT, and on Thursday the new portfolio manager was unveiled in the shape of Schroder Investment Management. The appointment is expected to happen by the end of 2019, after which the trust will be renamed Schroder UK Public Private Trust.
Strategy
While the presence of new management is to be welcomed, I suspect some investors will be disappointed to learn that there’s to be no change in strategic direction. The news release said: “Schroders intends to manage the portfolio in line with the company’s existing investment objective and policy. It will bring together its successful and established investment approach across both quoted and unquoted companies…“
I’m not quite sure where they got the “successful” part of that from, but the chance of Schroders making the same kind of investment howlers as some of Woodford’s surely has to be reduced.
Not taking anything from Schroders, the key thing in the minds of WPCT investors is surely simply that they’re not Woodford. And since we’d heard that Woodford was on the way out, whoever took over the management of the trust was always going to be not Woodford.
So, in a way, I’m surprised at Thursday’s exuberant market reaction, but only because I can’t help thinking it should have happened nine days previously. Still, it has put WPCT in the hands of a respectable firm with a long track record in the fund management business, and that’s got to mean an end to what, with hindsight, looked like a bit of a cavalier approach from Woodford.
Time to buy?
But does this news mean it’s time to buy WPCT shares now?
With the price standing at 39p as I write and the latest Net Asset Value per share (NAV) quote at 63.2p, we’re still looking at a discount to NAV of 38%. The gap has been closed since the worst of the Woodford days, when at one point it reached around 50%, but that’s still a big discount by investment trust standards.
But the NAV figure had been steadily declining under Woodford’s management, having been reported as high as 97.7p around a year ago. The fall has come about by the steady downwards re-rating of one after another of the portfolio’s unquoted ‘jam tomorrow’ picks, and therein lies the risk. Unlike investments in quoted companies, it’s very hard to put an accurate valuation on an unquoted one, and it often looks like little more than a finger in the air to me.
Further NAV weakness?
Schroder has until December 2022 before it can claim any performance fees, and it will then only get them if the NAV is above 77p. That’s a 22% appreciation in three years, which could be a tough task — especially as we don’t know the extent of any possible further Woodford-era downgrades to come.
If you really want exposure to the kind of unquoted assets that WPCT specialises in, now could be a very good time to get on board. But it’s not a strategy for me.