If Neil Woodford had thrown darts at a wall covered with the names of potential investments, he would have been unlucky to have ended up buying some of the stinkers that litter his trio of portfolios.
Take the Woodford Patient Capital Trust. The fund’s premise is that those investing in it should take the long view; think at least a decade, not months, not years. Fair enough. Yet serious questions have been raised about some of Mr Woodford’s picks, most prominently of late Prothena, a drug developer that short-sellers claim is a giant turkey. The company’s shares, the trust’s second largest holding, have fallen by more than 40 per cent in the past three months, as the market appears to agree.
Then there is Purplebricks. Analysts at Jefferies, the American investment bank, have claimed for some time that the online estate agent, the trust’s fourth largest holding, is fiddling its numbers to present an artificially rosy impression of its sales figures. Purplebricks had been the largest single contributor to the trust’s performance, but in the past week the stock has lost nearly a fifth of its value.
The problems are not restricted to the trust. The Woodford Equity Income Fund, Mr Woodford’s main vehicle, has watched several of its biggest bets go sour in the past year. Imperial Brands, its largest stake, is down more than 20 per cent. Astrazeneca has recovered from its lows last summer but is hardly a stellar performer. But these are sideshows compared with the collapse at Provident Financial, a top ten holding, that has lost three quarters of its value amid a catastrophic reorganisation at the sub-prime lender.
In fairness to Mr Woodford, who is nothing if not open, his approach has always been one of studied contrarianism. Yet even among the faithful there is a sense that this time may be different as investors have watched him try to defend his decision to increase a holding of Capita only weeks before a profit warning that led the share price to halve last week.
“This isn’t underperformance relative to other styles but a significant misreading of companies’ prospects and their performance,” one apparently long-term follower of Mr Woodford wrote on his investment firm’s website.
Some big money has already abandoned the funds. Jupiter Asset Management withdrew £450 million last year and Aviva has taken out about £30 million of its clients’ cash, but what of those who may not like the performance of an individual fund but believe that the former Invesco Perpetual star manager has not lost his old magic? For these hardy folks, the Patient Capital Trust probably remains the best bet. The fund is UK-focused and as much as 80 per cent unquoted, meaning that it is hard to tell yet whether its bets have come off.
The point is that those who choose to buy into the trust must have plenty of faith in Mr Woodford and his team’s ability to spot the early investments that will offer outsize payoffs. Only one or two mega-hits can make up for a batch of rubbish. If Atom Bank, the online lender, can grab a sliver of the market share of the high street banks, investors could be rewarded handsomely. If Ratesetter can overcome some recent travails, the peer-to-peer lender could be rewarded with a lucrative valuation in a flotation — and that is before you look through the long list of healthcare investments, any one of which could provide the fund’s ultimate payday.
That, of course, is to place a lot of faith in Mr Woodford, but then what were investors doing putting their money there in the first place if they didn’t have that faith?
Advice Buy
Why If you want a patient investment, then you’ve got to take the rough with the smooth
Electrocomponents
With a catalogue full of robot parts, thermal imagers and memory chips, Electrocomponents provides investors with an interesting insight on global manufacturing trends and the state of the economy.
The electronics distributor’s latest trading update shows a 14 per cent rise in revenue in the four months to January 31, better than expected. It also comes after a recent report from the International Monetary Fund, in which it raises its global growth forecasts for this year and next from 3.7 per cent to 3.9 per cent and proclaims the “broadest synchronised global growth surge since 2010”.
That Britain appears as a laggard in the IMF report, with projected growth this year and next of only 1.5 per cent as it leaves the European Union, is a concern to the company, but not a big one, as 75 per cent of its revenues come from overseas.
Two years ago Electrocomponents started to emerge from a long-term decline. It has since been on an extraordinary run of delighting the market with exemplary strategic execution driving a regular cycle of earnings upgrades under Lindsley Ruth, its chief executive, who joined in 2015. Yesterday the shares rose 2.8 per cent to 628½p.
Mr Ruth has upgraded the company’s digital platform, cut costs, improved service levels and built relationships with customers. He also has turned around its “unacceptable” performance in Asia. That part of the business, which increased revenues by 22 per cent in the four-month period, is close to breaking even.
The company showed strong underlying growth in its digital revenues in the four-month period, as well as 14 per cent growth in sales of its own-brand goods.
Electrocomponents is studying the potential threat levels from Amazon’s business-to-business platform, which is growing rapidly. So far there is limited product overlap and for now Electrocomponents maintains the upper hand. Thanks to its strong relationships with its suppliers, some of whom refuse to sell on Amazon, and to the superior technical expertise of its 1,300-strong sales team, it continues to expand market share.
Advice Buy
Why Innovation-led strategy continues to deliver market share gains
