Trust Buyers Split On Woodford Patient Capital

However, critics have warned the share price may never recover from the fallout and buyers are "better off betting on a horse".

Fidelity blocks investors from buying Woodford Income Focus fund

Woodford Patient Capital trust's (WPCT) share price has fallen by around 30% since 3 June, though the pace of the decline has softened in recent days. It is at present the most shorted investment trust in the FTSE 350.

With total assets of £927m, WPCT is currently trading at a discount of 38.1%, according to Association of Investment Companies figures, as at 20 June.

In terms of returns, WPCT has lost 27.3% and 40.3% over one year and three years respectively according to FE, while the IT Growth Capital sector has returned 10.5% and -9.2% over the same period.

Managing director of Chelsea Financial Services Darius McDermott said the firm is monitoring WPCT's share price, which at time of writing (afternoon of 2 June) stands at 53.7p, and while it would not buy at this time it will consider doing so if it reaches 45p.

He added: "Clearly the franchise is struggling and it is not something we would look to buy until it was on a bigger discount. But we are doing some work as to what we think the right entry price is."

It follows Seneca Investment Management's Richard Parfect who has already used the share price fall as an opportunity to top up his position.

He told Investment Week he had been "selectively and opportunistically nibbling" at shares when they took "a significant leg down" on both 3 June and 6 June - since then the share price has fallen another 16.6%.

Falling knife

Investment director at Canaccord Genuity Wealth Management Patrick Thomas described an investment in WPCT at this stage as "a Hail Mary", adding that "discount is structural" and that buying into the trust now is "like buying a house and finding out all the floorboards are broken and the electricity does not work when you move in - you will just find more things have gone wrong".

He said: "It is the metaphorical falling knife. You are better off putting money on a horse. You have a manager whose track record in the unquoted space is questionable at best and you are not buying into a tried and tested process.

"It is one you are buying purely on the expectation there will be a catalyst for performance to turn around and the enormous discount to widen. It is hard to fathom what that catalyst might be, particularly when you are looking at fledgling companies." 

Director at equity research boutique Marten & Co James Carthew said the valuations of these unlisted holdings, and the trust's NAV, are likely to come under pressure as companies held in common by WPCT and Woodford Equity Income are likely to see their valuation fall.

He added Woodford "has been a major supplier of capital to these underlying holdings" and with WPCT already highly geared it would be "extremely reckless for it to gear up anymore".

Carthew said: "That is going to affect the long term health of a lot of these companies, which is something else to worry about."

Woodford Equity Income: The story so far

In addition, he noted WPCT is unlikely to bounce back to previous share price highs any time soon with long-time advocates "losing faith".

Carthew said: "Once you go through a period like this, it takes a lot for investors to trust a company again. 

"It is also in the name - Patient Capital - it is not the sort of thing that is suddenly going to have a turn around and start distributing cash."