Thursday, 27 September 2018

Woodford Patient Capital - New Purchase

I am making a little more progress with the transition of my portfolio from income to growth. Today, I have added Woodford Patient Capital trust to my portfolio as a replacement for City Merchants High Yield trust.

WPCT provides financing for early-stage businesses that seek to turn innovative new products into a commercial success. It is a unique investment trust that, as the name suggests, requires a long-term outlook.

The trust raised £800m when launched in April 2015 however it has been a bit of a rollercoaster ride for investors. There have been some significant setbacks within the portfolio to date, notably investments in Allied Minds, Circassia and Northwest Biotherapeutics. Overcoming setbacks is part and parcel of investing in early stage companies and any portfolio, whether investing in large or higher-risk smaller companies, will have winners and losers.

The bulk of the trust remains invested in ‘early-stage’ and ‘early-growth’ companies many of which are not listed on a stock market. These tend to be highly innovative companies developing new products and services that have the potential to change entire industries, many of which feature in the healthcare sector. Obviously not all of them will succeed.

However, Neil Woodford is reported as saying, in the teeth of such disappointments, that the trust has stakes in several companies that could be worth billions of dollars each in the next five years. On the basis of that potential, and assuming that the trust sticks with its original investments without taking any more punts on jam-tomorrow stocks, I think the lower share price currently makes it more attractive.
(click to enlarge)

Last week the shares received a boost from a reassessment of the value of cold fusion specialist Industrial Heat. Woodford says it funded this company 'to engage credible world-leading institutions rigorously to assess the claims of research groups in the field'. Growing interest in the business has enabled it to raise money from other investors prompting a substantial increase in its value.
Industrial Heat is now worth US$112.9mln according to Woodford's alternative fund manager Link, or a 357% rise compared to its previous valuation. That translated into an 8p uplift in the net asset value of Woodford Patient Capital Trust.
Earlier this year the trust received a valuation boost from the US stock market flotation of Autolus Therapeutics, which is currently its largest holding.
The value of its stake in Autolus jumped by 51% as a result of the IPO (initial public offering) being priced at a higher level than the current book value of its investment. In turn, that provides 3.8% uplift to the net asset value of WPCT.
This is the type of outcome which vindicates Woodford’s approach of finding businesses with ‘outstanding intellectual property’, helping them grow with financial support, and then reaping the rewards with exceptional long-term returns.
Top Holdings
The Company is invested in five companies that are valued at more than $1 bn Autolus, Purplebricks, Oxford Nanopore, Benevolent AI and Immunocore. Some of the largest holdings are related to healthcare.
The largest is Autolus which listed on Nasdaq in June and accounts for 11% of the portfolio. It has developed a therapy which extracts white blood cells, modifies them to target cancer and reinjects them. Its related therapies are currently going through stage one and two trials, but similar methods have already passed phase three trials in competitor companies, which gives Neil a high degree of confidence the treatments will be validated. The trust is retaining its holding despite the gains on flotation, hoping there is much more is to come from the stock.
Benevolent AI, a 9.5% position, uses artificial intelligence techniques to generate ideas for treatments for disease. The technology finds associations and similarities across research papers, potentially generating ideas for new drugs which human researchers might lack the perspective to find. It is also developing further uses for its technology outside of healthcare. Earlier this year the company raised $115m from new investors which valued the company at £2bn.
Oxford Nanopore, 8% of the trust, produces handheld gene sequencers. Its main customers at the moment are in the University, but it is keen to develop new markets and uses for its tech. It is not the only player in the field, but it does have advantages over its largest rival Illumina, both in the handheld nature of its product and in the more efficient way it builds a genome up from larger building blocks.


The trust also does not levy an annual management fee. However they will levy a hefty 15% performance fee when the trust can deliver on its promise of 10% annual NAV return. Woodford Investment Management has not yet taken any performance fees from the trust, and has some way to go before it does. The management’s incentives are therefore well aligned with the interests of shareholders.

The trust has around 90 holdings - split two-thirds unlisted and one-third listed. It recently reported half-year results to end June 2018 (link via Investegate)

At the time of this post, the net assets of the trust are estimated close to 100p however the share price lags behind at 85p which gives me a discount of 15% .

The purchase is speculative and no more than a punt on the talent and judgment of Neil Woodford to deliver the goods he has set out to achieve. The initial purchase is quite modest and represents less than 2% of my portfolio.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Tuesday, 25 September 2018

City of London - Final Results

I first purchased CTY for my personal equity plan (PEP) in 1995 - it has served me well enough over the past two decades and it represents the largest weighting in my remaining IT income portfolio (ISA and SIPP drawdown).

City have just announced 
full year results for the year to 30th June 2018 (link via Investegate). Share price total return has increased by 6.2% over the year. Once again however the performance was less than the FTSE All Share benchmark of 9.0%. The trust took a big hit from the collapse of Provident Financial. The manager however is quick to point out the outperformance over the longer period!

Dividends have increased by 6.0% from 16.7p to currently 17.7p giving a yield of 4.1%. This represents over 50 years of rising dividends - quite an achievement.

Earnings per share rose by 5.0% to 18.7p, mainly reflecting the underlying dividend growth from investments.

Ongoing charges are 0.41% and remain the lowest in the sector.

I have been reducing my exposure to UK equity over the past year or two and I have recently reviewed my strategy as I no longer require income and will focus more towards global growth.

3 Yr Performance v FGT & TMPL

I will therefore be looking to offload my CTY holdings when circumstances look favourable. I feel the time is right to put the faithful old carthorse out to grass in retirement. The fact that the trust has lagged the all share index over the past couple of years makes the decision easier!

As ever, please DYOR

Friday, 21 September 2018

Turn Back the Clock

There have been several articles about the collapse of Lehmans in September 2008 and over the past few days I have been casting my mind back to the very different life I was leading a decade ago.

Back then I was living and working as member of a community partnership based on the edge of Dartmoor in Devon. We owned a large 12 bed manor house set in its own extensive grounds - 18 acres of pasture and woodland overlooking the surrounding villages. It felt like I was living the dream life, far from the madding crowd.

Work involved hosting groups of between 10 and 20 people who would stay for a long weekend or possibly a week. The courses were mainly centred around personal development and relaxation - so, things like tai chi, yoga, meditation, massage etc.

All of my partners had various responsibilities - ground maintenance, cooking, bookings co-ordinator, plumbing and general house maintenance etc. My main responsibilities were as accounts manager...what's not to like about counting money! In addition to this we would all muck in when needed, especially at busy times when there was a same day change over between one group finishing and another arriving.

The business turnover was quite healthy, I think we were getting toward £300,000 per year but of course this was not all profit and there were all the expenses of servicing the groups and what was left over was divided 10 ways..and then there was tax and insurance...and no company pension scheme...but we enjoyed 'free' food, and use of the indoor swimming pool and sauna when the groups had left.

When the larger groups were in residence, it could be very busy starting with breakfasts at 7am and usually finishing after the evening meal, maybe 8pm. There was plenty of time for relaxation however - walks on the wide expanse of Dartmoor, usually a trek up to Pew Tor and back, or along the banks of the nearby river Tavy. I enjoy tennis and spent quite a bit of time on the courts. Then there was just taking time out in the grounds which included a large Victorian walled garden, a wildflower meadow, orchard and lots of places to curl up for the afternoon with a good book.
Pew Tor, Devon

I had been doing this for the previous 6 years since giving up on financial services for a large insurer based in the North West...far too stressful!

Over a period of time however personality tensions inevitably grew, it became more difficult trying to work with 10 partners who all had differing opinions on how the business should be run as well as tensions arising from some people doing more of the work than others, feelings of insecurity and all the usual personal politics and game playing and even infidelities...idyllic surroundings provide no escape! 

I think by the end of 2007 it was becoming clear these tensions were not going to get resolved and in the end we decided to wind things down and sell the property. This was completed by mid 2008 when we all departed with our share of the proceeds to go our separate ways.
River Tavy, Devon

Post Devon

I had grown very attached to the good life and made a few close friendships and joined the local choir. I stayed on for a few months to give myself some time to think about my next move. My roots are however up North and in early 2009 it was time to return. As it turned out, fortuitous as the grandchildren came along shortly afterwards and I am lucky now to be a mile down the road rather than 300!

I had also made a decision to not seek alternative employment and it was therefore in June 2008 that I 'retired'. Whilst the money would not stretch far in Devon, I had sufficient for a house up North and although I could never get by on cash savings due to the dire interest rates, I could get along fine with income from my investments and SIPP which was duly converted to drawdown.

The markets hit a low in Feb 2009 and some of those most affected were financials. Whilst interest rates were falling quickly, it was possible to acquire building society PIBS and bank preference shares with an annual yield of 10%. I loaded up my portfolio with a good spread of income-generating securities... PIBS from the Coventry, Nationwide and Skipton as well as some Lloyds Bank prefs. I also picked up a few investment trusts such as Edinburgh, City of London and Murray Income as well as some higher yielding shares such as Shell Oil, BHP Billiton, Scottish & Southern all of which helped to generate the income I needed on a regular basis.

So, an interesting and colourful chapter in my life. If I had my time over, would I repeat the experience? Yes, I'd like to think so.

What were you doing a decade back? Feel free to share some memories in the comments below.

Wednesday, 19 September 2018

Edinburgh Worldwide - New Purchase

As part of a move from income to growth following a strategy review earlier this year, I have recently added this global managed investment trust to my SIPP portfolio. (NB not to be confused with the UK income trust Edinburgh IT managed by Mark Barnett)

The trusts is part of the Baillie Gifford stable which also includes Scottish Mortgage. It has been managed by Douglas Brodie since 2014.

The focus is very much on global smaller companies with an initial market cap. under $5 billion. The trust is widely diversified and at any point the typical portfolio will hold between 75 - 125 holdings in a minimum of 15 sectors and from at least 6 different global markets.

The current portfolio is weighted in favour of biotech, pharma and technology stocks which account for around 60% of the portfolio. No doubt the manager is influenced by the much larger Scottish Mortgage trust and will be looking to invest in similar types of stocks but at an earlier stage of their growth.

The strategy has paid off in recent years with returns exceeding the global smaller companies index and the share price moving from discount to a small premium. Over just the past 2 years the share price has increased by over 100% from 490p to 994p at the time of posting.

3 Yr Comparison v SMT (click image to enlarge)

As with my initial purchase of SMT in January 2017, it can be difficult to 'buy the dips' when a share price is rising quickly so I have taken the plunge and hope there will not be a significant pull back over the coming months. My Scottish Mortgage acquisition is currently up 60% since purchase so I can afford to be a little more relaxed with this one.

Full year results to end October should be available in early December.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Wednesday, 12 September 2018

Help to Save Scheme Launched

An area that has concerned me for some time is the proportion of people in the UK who have little or no savings. A large number of people borrow to make ends meet. According to The Money Charity, the average household currently pays over £1,800 p.a. interest each year on personal loans and outstanding consumer credit lending is £213 billion.

In an effort to address this culture, the Government have this week launched their new saving initiative which is aimed at workers in receipt of tax credits or universal credit.

People can save anything between £1 and £50 per month and will receive a bonus of 50% on the sum saved after two years. So someone saving the max. of £1,200 would receive an additional £600. If they continue for a further two years they would get a second tax-free bonus of 50%.

Withdrawals can be made at any time but bonus payments could be affected.

This should be a help to many thousands of families on low incomes and hopefully help them to build a useful cash reserve and importantly get them into the habit of saving regularly and taking responsibility for their finances.

The debt charity Step Change welcomed the launch of the scheme. Its chief executive, Phil Andrew, said: “We campaigned for help to save and it is a good scheme. Ninety-eight per cent of our clients have no savings at all at the point they turn to us, and only 1% have £1,000 or more. Yet we know that having £1,000 in rainy day savings virtually halves the risk of falling into problem debt, so helping lower income working households to build savings should be an important policy goal.”

It is estimated that over 3 million people would qualify for this savings scheme. The scheme will be available for the next 5 years.

Saturday, 8 September 2018

Mid Wynd - Full Year Results

Mid Wynd International is a theme-based global investment trust. The strategy is to hold around 60 - 70 holdings between 8 to 10 themes. 

Current themes include Automation/Robots 16%, Emerging Market Consumer 9%, Tourism 13%, Healthcare & Immunology 15%, Online Services 13%, Low Carbon World 2% and Scientific Equipment 11%.

The management team led by Simon Edelsten have built a portfolio of high-quality holdings which focus on a number of trends which offer the prospect of long term growth.

The shares were added to my portfolio in April at the price of 474p. In June the price received a boost when the company entered the All Share Index and therefore the shares were in demand from the growing number of index trackers.


Mid Wynd have recently announced results for the full year to end June 2018 (link via Investegate). This has been another good year with share price total return up 13.4% compared to the All Country World Index 8.9%.

I have acquired this trust mainly for growth but it does offer a yield of around 1.0%. The total dividend for the full year will be increased by 11% to 5.55p which is covered by revenues of 7.14p.


Concluding his outlook, chairman Malcolm Scott said:

" Of course the bull market that began in March 2009 will not go on forever. Ultimately recessions cause bear markets. Many commentators are predicting a US, and indeed a global, recession in 2020. The catalyst for that will be apparent only in hindsight. In the meantime, we continue to believe that a diversified portfolio of companies exposed to growth around the world, and whose share prices are clearly supported by their underlying cashflows, will continue to serve your Company well over the longer term - come bull or bear."

3 Yr Comparison v Scottish Mortgage & Polar Technology
(click to enlarge)

This is early days for me, just 5 months in. The share price is currently 535p so a rise of 13% since purchase. It certainly seems to be less volatile compared to my other tech holdings, Scottish Mortgage and Polar Cap Technology Trust.

Interesting that the managers have hardly any UK-listed holdings. They say this is because all the best firms are unlisted and of the rest, they over-pay  in dividends and are under-invested in the business as a result. (This seems to tie in with my previous post on returns between the UK and US.)

For now, this can return to the bottom drawer but I may well add to my holding as my income-generating holdings are sold off. Currently however, the fall in the value of sterling does not offer such tempting deals.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Monday, 3 September 2018

UK v US Investment Returns

Whilst reading back my previous post on the amazing bull run in the US equity market, I was struck by the underperformance of the UK market by comparison.

Not so long back, much of my investments were made up of a mixture of individual shares and investment trusts focussed on the UK market. I was looking for natural income from these investments and the FTSE 100 offered a yield of around 4% compared to the yield of only 2% from the likes of the US market in the form of the S&P 500.

Whilst it has been reassuring to collect this income plus a little additional capital growth, I came to the conclusion in 2015 that my focus on natural income may have been a little short-sighted as more globally diverse options were often overlooked as they did not provide my required level of income.

Total Return

In 2015, I reviewed my strategy and decided to wind down my UK-listed individual shares in favour of globally diverse low cost index funds such as Vanguard Lifestrategy. This also included moving away from a reliance on natural income and a shift to taking my 'income' from the total return generated by these global funds.

Luckily this moved has worked out well due to the fact that global funds are priced in USD and the fall in the value of sterling post the Brexit referendum in June 2016 has boosted the returns on my index funds.

Global v UK Returns

Since March 2009, the US market has delivered a total return in excess of 400%. From a closing low of 677 it has risen to (currently) 2,900 and if we factor in dividends this gives an average total return of 17% p.a.
Compare L&G Index funds for US and UK
2009 to 2018 (click image to enlarge)

Unfortunately, the UK market has failed to keep pace and over the same period the FTSE 100 has risen just 190% on a total return basis. Yes the UK dividend yield has been much higher at ~4% compared to 2% in the US, but from a low of 3,750 in March 2009, the FTSE has risen to (currently) 7,500 or 100%.

I would surmise the difference is largely due to tech stocks. The US markets are home to the likes of Google, Apple, Amazon and Netflix which have delivered outstanding returns over the past decade. Tech accounts for 25% of the S&P. In contrast our markets are dominated by the struggling financial services (20%) and energy companies (18%) whilst tech companies account for less than 1% of our market.

Income in Retirement

I guess many investors will look to investment trusts or income funds to provide their steady 4% or 5% income. When I started my early retirement journey back in 2008, the bulk of my investments were a mix of UK higher yielding shares and ITs. I thought it made sense to try to preserve what capital I had accumulated and from that, maximise the income I could generate.

Looking back however, this was possibly not the best strategy. Hindsight of course is a wonderful thing but the lure of tempting natural yields should not mean the focus of total return is compromised.

A total return of 10% per annum over a decade providing a natural income of just 1% or 2% will always be far superior to a return of 7% which includes a yield of 4%.


The UK market has not offered the best returns for investors over the past decade. This may change as reversion to mean cannot be discounted over the longer period however, until the full saga of Brexit is played out - I am thinking probably at least 10 more years - we will likely continue to face headwinds.

The UK market makes up around 6% of the global market and the top 10 companies account for ~35% of the FTSE 100 index. A globally diverse index fund gives access to over 2,500 companies spread over 50 countries.

I think it makes sense to maintain my globally diverse portfolio. We do not know which areas of the global market will deliver the performance over the coming decade or two. My expectation is for more modest returns compared to the past 10 years. Maybe the UK will recover, maybe not...will the US tech companies continue to deliver or will the growth be delivered by the fast-growing China? Who knows...

Nobody can know when the US bull run will end so for me it's about managing risk which involves maintaining a sensible asset allocation in line with my desire for optimising gains matched with my need for minimising volatility during the next downturn. 

Accepting that nothing is certain, the probability of higher returns from my globally diverse equity exposure means I can hold a higher proportion of lower volatility bonds to achieve the same outcome.

Feel free to leave a comment below. What proportion of UK exposure do you hold compared to global? Do you think the US market is over-valued now?