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Woodford Patient Capital Trust - New rating

Woodford Patient Capital Trust is a new investment trust from Woodford Investment Management. The group is looking to raise £200 million for the trust, having raised over £5 billion in the open-ended Woodford Equity Income fund in less than a year (and over £10 billion in Woodford Investment Management in total).

Manager Neil Woodford believes that the UK has a strong track record of innovation and possesses some of the world’s top universities. However it has been weak at commercialising these innovations, particularly more recently. He believes this is partly due to a lack of ‘long-term patient capital’ – institutional investors ignore the space, whilst VCTs are too short term. It is this gap the trust aims to fill.

The trust targets long-term capital growth from a portfolio of predominantly unquoted and early-stage quoted companies. It will also include around 25% in FTSE 350 stocks - these will be a subset of those in his existing fund.

This is significantly different to Woodford’s open-ended fund which focuses on FTSE 350 stocks and has an income target – the trust is unlikely to pay a dividend. The existing OEIC does have a long tail of small caps and unquoteds, as did his Invesco Perpetual funds. Woodford has been investing in unquoted companies for ten years and has achieved some notable successes, including Allied Minds and Circassia Pharmaceuticals which listed in 2014. However, serious investing in unquoted stocks only began in 2010. Given the long-term nature of the holdings, it is too early to say whether he has been a success.

The trust has an innovative fee structure, with no AMC and a performance fee only payable if annual returns exceed 10%.

Woodford has an outstanding record in the UK Equity Income sector over a 26 year period. However, this largely relates to large and mid-cap stocks – his track record in unquoted investing is limited and hard to interpret.

The trust is cheap and offers exposure to an area of the market not readily available to investors. We suspect the IPO will be a success, but beyond that this requires a long-term commitment. Despite Woodford’s name it is most suited as a small part of a diversified portfolio.

We have awarded the Woodford Patient Capital Trust a two star (hold) rating.

Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. If you are unsure about the suitability of an investment or if you need advice on your specific requirements, we strongly suggest that you consider professional financial advice.

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.

Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. Any yields quoted cannot be considered reliable indicators of future income.