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!


  1. Good luck with these, diy - I must say that I've had an eye on WPCT and been tempted by the large discount but wary of the volatility. Still, I only have so much capital to 'punt' and it's likely I'll be punting on AJ Bell's IPO later in the year/early next year but I'll continue to watch WPCT.

    1. Thanks weenie, it's a gamble but could provide big gains if some of the early stage holdings are successful.

      I am also planning to buy some AJ Bell when they float, coincidentally Woodford has been a big supporter of Andy Bell and I am hoping it can follow in the footsteps of HL. I am also interested in the Smithson trust which launches in October...choices, choices mmm

    2. Oooh, I was going to ask you about the Smithson trust but October's too soon for me. Yeah, too many choices!

  2. Nice addition to the portfolio.
    I’ve been on board since launch, topping up along the way. The problem with this IT is that it’s packed full of pharma firms and it’s really difficult to ascertain if the portfolio companies are any good. It’s a matter of faith in Woodford, really.
    Anyway, I’m in for the long haul so that’s 20+ years. Welcome aboard!

    1. Thanks Chris. I have held a couple of Woodford funds in the past, most recently Edinburgh and admire his long standing track record. I have been keeping an eye on this trust since launch and as it now fits my requirements for growth, I decided to tuck a little away for the long haul. I have never heard of most of the holdings and do not really understand what they do so, as you say, more a case of backing the manager's judgment combined with the 15% discount.

  3. Ciao Dyi,
    This trust is really interesting, but it doesn't pay any dividend, am I correct? Of course being a growth oriented fund I guess dividends are not really part of the play there!
    But as you mention is a speculative play, so I guess you are looking at some quick appreciation of the share price (which might also be under pressure due to Brexit woes)...
    ciao ciao

    1. Yes Stal, no dividend so will need to hold for capital appreciation down the line and will possibly need to be more patient than usual for the rewards! I think Neil Woodford is a canny operator but time will tell. (Don't mention the B word...)