Why I'd shun Woodford Patient Capital Trust and buy this super investment trust
You almost have to feel sorry for ace fund manager Neil Woodford, who has changed from being the nation's investment golden boy to its whipping boy in just a couple of years.
After a blistering debut, his eponymous vehicle Woodford CF Equity Income has trailed its sector horribly, falling 13.4% over the last 12 months and his £650m vehicle Woodford Patient Capital Trust (LSE: WPCT) has done even worse, falling 15.1% over 12 months, against a 5.1% rise on the All Companies sector.
I hold his equity income fund and am staying loyal for now. As markets turn volatile, his focus on dividend-paying stocks could prove its merits, provided he avoids more reputation-crunching disasters such as doorstep lender Provident Financial. However, I also share Edward Sheldon's concern that it has strayed away from its original intention.
Loss of trust
I never had much time for Woodford Patient Capital Trust, launched in April 2015, which saw the dividend hero stray into uncharted (for him) small-cap territories, presumably hoping his reputation would see him through. Instead, his reputation has been sunk.
In the early, heady days this trust traded at a premium of as much as 4%, but today it is at a deep discount of 9.59% as investors lose heart. It has also changed tack, taking on more risk rather than less. Solid FTSE 100 companies have been ditched, while the limit on unquoted companies has been enlarged from 60% to 80%, as GA Chester points out here.
Almost half of the fund is invested in just six stocks, with its biggest holding Oxford Nanophore making up a whopping 10.1% of the fund (and down 54% over three years). The next five, Prothena, Purplebricks, BenevolentAI, Immunocore A and Proton Partners International are all at the higher end of the risk scale. This would be fine if the trust was shooting out the lights like so many smaller company funds right now, but it isn't.
If you want to invest in smaller biotechnology and healthcare stocks, I would suggest an investment trust that has a proven long-term track record in this area, the Worldwide Healthcare Trust(LSE: WWH) launched in April 1995.
If you had invested your full allowance in the fund every year since 1999 you would now have a whopping £794,856, according to the Association of Investment Companies. It is up 28.7% over the last three years, Trustnet shows (which looks even more impressive when set against Woodford's double-digit loss), and 152% over five years.
Worldwide Healthcare Trust invests in a diversified portfolio of global pharmaceutical and biotechnology stocks for capital growth. It uses gearing and derivative transactions to enhance returns and mitigate risk, and holds a wider spread of stocks including established names such as Merck & Co (its top holding at just 4% of the portfolio), Novo Nordisk and Bristol-Myers Squibb
Worldwide Healthcare Trust isn't directly comparable to Woodford's UK-focused fund, with roughly two-thirds invested in North American equities, and holdings across Europe, emerging markets and Asia Pacific. It is in demand, trading at a slight premium of 0.94. Woodford may have lost his admirers but this fund certainly hasn't.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.