Simultaneous entry of Woodford Patient Capital and Smithson investment trusts into FTSE 250 points to rivalry of their star investors but underscores how Terry Smith has supplanted Neil Woodford as UK’s most successful fund manager.
Neil Woodford’s Patient Capital Trust (WPCT) is poised to return to the FTSE 250 after its battered share price leaped 19% in the past six months.
FTSE Russell Group, which owns the FTSE stock market benchmarks, has announced that the investment trust, which is in the midst of a turnaround, will be one of eight new entrants to the ‘mid cap’ index when it undergoes its quarterly adjustment before Christmas.
This provides some festive cheer for the beleaguered fund manager after the investment trust was demoted from the FTSE 250 in May following a string of setbacks for the portfolio of mostly unquoted, life science start-ups ended its three-year reign in the index.
Any joy felt by Woodford at his trust’s re-promotion will, however, be offset by news that arch-rival Terry Smith has seen his new Smithson (SSON) investment trust sail into the ‘mid-cap’ index after its barnstorming stock market flotation in October.
Smithson, a global smaller companies fund, raised £822.5 million in its initial public offer (IPO), setting a new record for a UK-based investment trust and beating the £800 million achieved by Woodford Patient Capital over three-and-a-half years ago.
The trusts’ simultaneous entry into the FTSE 250 points to the intense rivalry between their two star investors while underscoring how Smith has supplanted Woodford as the country’s most successful fund manager.
Woodford’s flagship Equity Income fund has halved from £10.2 billion to £5.1 billion in the past 18 months as investors have pulled out their money in response to its disappointing three-year performance that has left it almost at the bottom of the Citywire UK Equity Income sector.
Smith’s Fundsmith Equity, a global fund, has ballooned to over £17 billion on the back of consistently strong returns that have earned the manager (below) a top Citywire AAA rating for the past three years and a spot near the peak of its Global sector. By contrast, Woodford last held a AAA-rating in 2015/16 and has been unrated by Citywire since the middle of last year.
The quarterly reshuffle includes another reminder of Woodford’s current lack of form. Among the eight companies ejected from the FTSE 250 is Kier Group (KIE), the construction group whose shares have slumped in the past week after an emergency fund raising to bolster its balance sheet. Woodford is the biggest investor in the company with a stake of over 14% through his funds, having first bought in to the stock in March.
Woodford can at least take comfort from the recent improvement in Patient Capital. After the earlier setbacks in the year, such as the failure of a key drugs trial by Prothena, its then biggest holding, the trust has enjoyed a better run of news with its net asset value (NAV) advancing by a fifth.
This week Ultrahaptics, a company developing devices that can generate virtual shapes in the air with ultrasound vibrations, announced it had secured £35 million of new financing from existing investors, including Woodford, and new backers such as one of Australia’s largest pension funds.
However, news of Patient Capital's rebound has yet to convince investors with the shares trading at 88p, well below their 100p launch level, and at a stubborn 13% discount to their NAV per share of 102p, a state of affairs that prompted one analyst to upgrade it to a 'buy' this month.
‘Strong share price appreciation from companies like Autolus, Benevolent AI and Proton Partners has helped repair the damage from failed clinical trials at Prothena in April, and Woodford Patient Capital Trust is now trading at close to its highest level so far this year,’ commented Laith Khalaf, senior analyst at Hargreaves Lansdown.
‘The nature of the early-stage businesses this trust invests in means performance can be expected to be volatile and lumpy, and so the fund is suited to investors who are adventurous and patient, as the name suggests,’ he added.
Royal Mail taken out
Woodford Patient Capital is not the only company finding life on the stock market uncomfortable. Royal Mail (RMG) is being dropped from the blue chip FTSE 100 index after a profits warning in October hit the shares.
Just Eat (JE), the rapidly growing takeaway ordering website, is also being taken out and slips down to accompany Royal Mail in the FTSE 250, despite reporting strong third quarter results two months ago.
The FTSE 250 has also been boosted by the market debuts of luxury car maker Aston Martin Lagonda (AML) and peer-to-peer lender Funding Circle (FCH), both of which have struggled since flotation in October.
Patient Capital and Smithson may soon be jostling alongside incoming closed-end funds. A string of other investment trusts and companies, such as Apax Global Alpha (APAX), NextEnergy Solar Fund (NESF), P2P Global Investments (P2P), Princess Private Equity (PEY), Sirius Real Estate (SRE), Schroder Oriental Income (SOI) and RDI (RDI) real estate investment trust are on the FTSE Russell reserve list waiting to come after asset growth and rising share prices.
If admitted, all new entrants can expect a further boost to their share prices as index-tracking funds buy their stock. That lift hasn’t happened today to Patient Capital, off 0.8%, and Smithson, down 1.7%. as markets have fallen heavily on renewed fears of the US-China trade war.