Patience urged as Woodford Patient Capital Trust NAV drops by -10.8%

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Investors in Neil Woodford’s Woodford Patient Capital Trust have been urged to be patient during difficult times as the net asset value dropped by -10.8% to £717.89m with the share value falling by -16.7% for the period up to June 30.

In a statement released by the company today announcing its half-yearly financial report for the period from 1 January up to June 30, 2016, fund manager Neil Woodford, told investors that despite the fact that it has been a tough start to the year for financial markets, and for the Woodford Patient Capital Trust portfolio in particular, “considerable progress” has been made across much of the portfolio.

According to the firms statement assets in the portfolio fell to £717.89m from £814.86m a year ago. The FTSE 250 firm’s net asset value also fell to 86.81p from 101.86p, while its share price at the same time dropped to 84.1p from 113.5p.

“I understand that some investors will be disappointed with the performance so far, but it is early days for a strategy that is looking to exploit very long-term opportunities,” said Woodford. “Furthermore, although part of this performance is the result of fundamental developments, the majority of it is not.

“This is, of course, an investment vehicle that invests predominantly in higher-risk enterprises which typically do not have profits, cashflows or dividends. As we have said before, not everything we invest in, small or large, will succeed.”

Confident of ‘attractive long term returns’

Despite the drop, Woodford said that he remains “absolutely confident” that the investment will deliver very attractive long-term returns. He points to the fact that sometimes the share prices of quoted early-stage businesses will be volatile and they may sell off in small volume for no fundamental reason.

“We see these events as opportunities because share prices can, for long periods, become detached from reality,” said Woodford. “It is our job to exploit such opportunities, especially in circumstances where we believe that we have a very detailed understanding of the fundamentals of a business and its long-term potential. These are things which, in the short term, other market participants may deem to be supremely irrelevant to their decision making.

“Ultimately, however, it is critically important that we deliver what we have said we can achieve in terms of portfolio returns. We remain absolutely confident that we will deliver very attractive long-term returns from this portfolio and would like to thank our forward-thinking, long-term shareholders for their ongoing support.

Different investment vehicles

Patrick Connolly, an investment specialist and head of communications at IFA firm Chase de Vere said that investors need to understand the differences in the investment vehicles managed by the heavily followed star fund manager.

“While Woodford is seen by many investors as a safe and secure pair of hands, they need to realise that this investment trust is higher risk than the funds Woodford is usually associated with and can be subject to some periods where there will be significant falls,” said Connolly.

Within the portfolio, Woodford said that the fact that sentiment towards the health care sector has remained negative throughout the period under review caused issues. “This was particularly the case in the US, where election concerns and Hillary Clinton’s adverse rhetoric on drug pricing have in part prompted a prolonged and significant correction,” he said. “Having enjoyed several years of very strong returns, the Nasdaq Biotechnology Index, for example, has declined more than 40 per cent from its peak in July 2015.

“Less than 16 per cent of the portfolio’s assets are invested directly in US-listed biotechnology companies, but these negative trading conditions had a significant influence on health care shares on this side of the Atlantic too,” he said.

Positive returns 

A number of health care businesses in the portfolio delivered positive returns, despite the challenging backdrop. “Mereo BioPharma, for instance, was the largest positive contributor to performance, having successfully made the switch from unquoted to quoted during the period,” added Woodford.

“We saw a substantial uplift on our original investment made in July 2015 and, although it’s early days, the shares have traded positively since listing in early June (up 36.4 per cent to the end of the period)”.

Meanwhile, Theravance Biopharma, which Woodford introduced to the portfolio in January, was rewarded for some “encouraging development progress” by a steady share price rise of 38.4% during the period.

Outside of health care, Woodford added that Purplebricks delivered a positive contribution of 40.6% over the period, following its Initial Public Offering in December 2015, as the market became increasingly aware of its long-term potential and disruptive business model in the UK’s estate agency market.

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