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Post by Fletchsmile on Jul 3, 2019 23:30:47 GMT 7
Looks like WPCT may be starting to put a bottom in. I'm not a big fan of chartists and technical indicators, but when trying to call something like this, they can be worth a look to help. At a price of 58 and on the "daily" technical tab, it's now only a "sell" compare to a "strong sell" It's now above 5 day, 10 day and 20 day moving averages, as well as a "buy" on a couple of the other technical indicators. uk.investing.com/equities/woodford-patient-capital-trust-technicalAt a discount to NAV of just over 30%, and price below 60 it's worth a thought, if not too many more skeletons come out of the closet Still a bigg piece missing though as to happens when WEIF unit trust opens again. If that goes smoothly I think WPCT will have largely bottomed and has a good chance of beingover the worst. But if they mess that up and reputations takes a further beating then WPCT will suffer the knock on effect again. I'm not convinced Woodford group has a good enough risk management structure to manage the re-opening properly though
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AyG
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Post by AyG on Jul 4, 2019 6:43:39 GMT 7
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Post by Fletchsmile on Jul 4, 2019 13:51:48 GMT 7
I'd seen that somewhere before about a St.James report about Woodford's ability in unlisted and early stage companies. Unfortunately we'll never get to see what the actual report said and in the correct context to understand what they meant. Citywire and others look to have just latched onto a few words and phrases without understanding the context.
eg the report might have said:
"At this stage there is no evidence of his early stage company investments adding value over this time frame (say 3 years), however, the nature of such investments are such that the value often takes longer to be seen".
So many other things it could have been.That would be very different than to say: "no evidence over his 20+ year career analysing every start up investment ever made that is either now realised or held more than 3 years if unrealised". That would be a different story
Regardless, in my view St.James made a decent move in excluding that area from the mandate they gave him. His track record has shown skills and expertise in listed UK All Share/Income sectors rather than unlisted/ early stage, where I think he is unproven.
I only accepted it with the expectaion it was around 10% him playing around it that sector and 90% what he used to do, so allowed him a bit of leeway. Given a choice I would rather he did 100% what he used to though.
If this holds true though, what I'd expect is that if Woodford's performance was expected to be so dire in the unlisted/ early stage then the performance of St.James Place without the start ups should have been significantly better than Woodford's WEIF with the start ups.
But the facts don't bear out that claim about what St.James might have said. If I look at full calendar year performances:
St James (without early stage)
2018 -19.7% 2017 +5.7% 2016 -0.7% 2015 +7.7%
WEIF (with early stage companies)
2018 -16.7%
2017 +0.5%
2016 +3%
2015 +16.3%
Both are poor performance over the last 3 years.
WEIF beat St.James in 3 years out of 4, with a better cumulative performance over those 4 calendar years. The suggestion here is that the unquoted / early stages may have added value. We certainly don't see the outperformance expected if someone prohibits them from his mandate
So for me there is something that doesn't quite gel in the actual returns compared to what Citywire are implying, and the quotes from a report out of context that no-one has seen.
The problem has been the core of both portfolios. Not the unlisted element in WEIF which St.James doesn't have anyway.
Their articles tend to focus only on the things that goes wrong and negative points - as is common with news.
More likely to me the damage has been done as follows:
= Poor core performance + Poor risk management + Poor liquidity management because of large redemptioms due to core poor performance. 1 billion unlisted on 10bn+ is OK. But when the fund suffered massive redemptions the issue started
+ Large reputational risks and damage + Media input and negatives, without any of the positives once things started going bad. And focusing only on the unlisted that have gone wrong. Not the successes and those with potential.
The media in particular has blurred those issues.
The biggest problem with the early stage companies hasn't necessarily been poor performance, it has been the liquidity issues they create and the knock on spirals. If the core 80% had been doing well he wouldn't have suffered such large redemptions, and they wouldn't have caused many issues.
So contrary to what the media would imply, the root cause hasn't been poor performance of the start ups. It has been the poor performance of the fund as a whole, particularly the core elements, which grew too fast and couldn't handle the redemptions. Brexit probably hasn't helped wrong way bets either.
There are parallels in some way with Northern Rock. The root cause of failure wasn't capital ratios and profitability per say, but a liquidity crisis, which the building society couldn't meet once people lost confidence and they were unable to meet liquidity needs in the wholesale market. That liquidity then impacted every area of the business including capital.
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Post by Fletchsmile on Jul 4, 2019 14:15:46 GMT 7
I'm not convinced Woodford group has a good enough risk management structure to manage the re-opening properly though Perhaps equally importantly, are you convinced that Woodford is a great manager of the stuff he has in WPCT? To quote a recent Citiwire article: As above I think the Citywire artice needs taking with a pinch of salt.
I think Woodford has been a great manager in his area of expertise.
I'm not convinced that that extends to unlisted companies. However, nor do I think he is the disaster in that area that the media like to imply to sell their stories. When was the last time you saw the media highlight a successful investment? Maybe 3 years ago when he was a star, and a positive story, but not recently. There are some though. They have grudgingly only acknowledged them when they could put a negative spin on it. eg he will now not be able to realise as much profit because of problems. No mention whatseover of them before.
So for his ability in this area, the reality is likely somewhere in between. Maybe with more time he would have proved himself. Who knows?
So I assume him to be a mediocre investor in early start ups.
With that in mind, I see this as a possible value opportunity:
- Discount vs NAV is over -30%. So say an NAV of 83 vs 58 share price
- Average discount vs NAV has been around -8.5% over the 12 months with a low of -38.4 and high of +3.4%
- NAVs generally have narrowed for ITs in recent months so WPCT hasn't took part in that = double whammy
- Discount on WPCT seems to be bottoming as does share price
- A more realistic longer term dicount may be say 10% once all the probems start clearing up.
- So let's say 80 NAV after a few more smaller hits. Then a 10% discount to that is 72
- 60 or below entry price is interesting as that implies 20%+ upside
- Markets generally are at highs. So I don't see 20%+ upside in UK markets generally in the next 12 months. Also if markets do crash, I don't think it will be untouched, but WPCT should fall less, having taken so much bad news already.
- Most of the bad news has been baked in for WPCT.
- Very little positive news for WPCT in the price.
- Start ups take time to show benefits. This is a key point which I don't see considered often enough. As early stage investments mature thats when the real value starts. The age of the portfolio is key for this, and could well be at the right time. Several hits taken on the ones that naturally fail, but not yet started taking as much on the upsides
- Accounting standards tend more towards immediate impairment for losses, but take more time for gains. Accounting treatment is asymmetric in these areas. It's harder to recognise an increase in fair value than decrease. Although there will be uncertainty around valuations of unlisted companies this is worth bearing in mind
- WPCT has no AMC, but has a performance fee which is of course zero for now. So the ongoing charge is only 0.17% p.a.
- Investment Trust structure means that WPCT won't have the same pressure with redemptions and liquidity. Though it may have some issues with reducing borrowing facilities
- WPCT has been badly beaten up for issues relating to WEIF. Not all these carry across in the same way. Particularly the large redemptions that have shattered confidence. Price of WPCT has fallen because of the tidal wave of redemptions in WEIF.
Which all brings back to WPCT has been badly beaten up. This has been overdone in my view, particularly if one assumes Woodford is just a mediocre early stage investor. Even if a poor one there's still some undervalue
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Post by Fletchsmile on Jul 5, 2019 23:13:14 GMT 7
Further poor risk management from WPCT and a new limit they could be banging up against. ================================================================================= Woodford Patient’s limits loom as Proton stake balloonsFresh £25 million investment takes trust's stake in proton beam operator to around 14% of the portfolio. Embattled fund manager Neil Woodford could find himself caught between funding promises made to proton beam operator Proton Partners International (PPI.NXX) and the rules set by the board of his Woodford Patient Capital (WPCT) investment trust. His trust's stake in Proton has ballooned after the manager provided £25 million of further funding last month and now stands at around 14% of net asset value (NAV) up from 9% at the end of May. Woodford is limited to holding 20% of the trust's NAV in any single company, and that could be tested given Proton is able to demand a further £45 million from Woodford over the next 14 months. The funding can only come from Patient Capital after Woodford ruled out follow-on investments in early-stage companies by his suspended Woodford Equity Income fund, which he is attempting to reshape into 'a much more liquid portfolio'. citywire.co.uk/wealth-manager/news/woodford-patient-s-limits-loom-as-proton-stake-balloons/a1247401
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Post by Fletchsmile on Jul 5, 2019 23:49:22 GMT 7
Following on from above: A quick read through the the 2018 report I didn't find much on what his future commitments to these companies are, though may have missed it. I'd expect more in the accounting notes as they could present issues. Another limit he could find himself banging up against if not careful is the 80% limit on unquoted companies, 1) if he has to sell the quoted companies for such commitments and/or 2) he also reduces borrowings by selling them or can't rollover his facility and/or 3) A crash in the price of the quoted company(-ies) given how concentrated he is in a couple
Some stats:
As at Dec 2018 GBP 336 mn out of a total of 963 mn were quoted investments = just under 35%. But only GBP 225mn or about 2/3rds of those quoted are Level 1 and actively traded = approx 23%; and 12% are Level 3 "quoted" with no active market The portfolio has concentration risks on quite a few levels: - Autolus (Nasdaq quoted Health Care) represents 10.93% of the portfolio. So a massive chunk of that 23% Level 1 quoted is in a single company = almost half Level 1 - Industrial Heat A2 and A1 (Guernesy "quoted" Industrials) industrials represent a combined 6.25% + 2.76% = 9.01%. I assume these are Level 3 given the issues around them - So together these 2 companies are c. 20% out of that 35% "quoted" so ball park over a half / close to 6 tenths - 8 unquoted companies account for 48% of the portfolio or again nearly half, including ones that apparently may have claims to supply funding > Annex1 gives a bit more info, including initial investment dates = mostly around Q2 and Q3 of 2015 costs etc > 7 out of 8 are early stage, pre-tax losses exceeding turnover > Only 1 Oxford Sciences Innovation looks profitable, with 34.3 pre-tax profit on 41.1 turnover - I assume those are millions. Most of the others ae but some have units missing which is shoddy. > I guess OSI university is conveniently down the road for him to visit too > The 3 biggest unquoted investments, Benevolent AI (10.6% NAV), Oxford Nanopore (8.99%), Proton Partners (7.93%), are also valued on "Last Round" basis. I have to say I don't particularly like last round valuations/waterfall basis.
There's a lot could go wrong with just a handful of companies that could lead to other triggers
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Post by Fletchsmile on Jul 6, 2019 0:19:03 GMT 7
Seems like quite a lot of people are looking at WPCT as an opportunity as per the article on Yahoo below: I agree it could be an interesting opportunity For me though, rushing in last month during June, even though tempting, would have been rash: - There's the timing issue of falling knife as mentioned in above posts and also in the article. So I want to see a bottom forming on the price, which looks now like it may be happening. - Some due dilligence is also needed and a more thorough looking thru accounts and research / checking things.
- Plus more of the story is still unfolding, and likely will continue to do so.
There could be some real value in some of the stocks held.
BUT: - A much wider look at the risks is needed not just returns potential and opportunities. Any value could easily be undermined by the fund being poorly structured, with a poor risk management framework, which seems the case.
If these were a hundred unlisted investments of similar size making up 60% and 40% in a spread of quoted liquid stocks that would be one thing.
But they're not. There are a few key big bets. The risk framework is poor which leads to liquidity risks and banging up against limit after limit across both WEIF and WPCT there's a pattern to these mistakes. Nor is the quoted stocks which are supposed to be liquid adequately diversified. That quoted element also seems to have also been placed on a few big bets. It would have been better diversified and spread around, so it can more easily be drawn on if needed and isn't subject to the risk of a substantial shock to one or two large "liquid" holdings. If Autolus tanks for example they have a big issue.
That large bet on a single quoted company is inappropriate, and the fudging thru Guernsey won't be of much use for liquidity if it goes pear shaped
================================================================= Investors flock to Woodford Patient Capital despite fund freezeInvestors are flocking to one of high-profile fund manager Neil Woodford’s investment funds despite the ongoing crisis at one of his other funds. Investment platform Interactive Investor said on Wednesday that its most widely bought fund in June was the Woodford Patient Capital Trust (WPCT.L). Woodford displaced the Scottish Mortgage Investment Trust, which had been its number one fund every month bar one since February 2014. Woodford Patient Capital jumped six places to take the top spot. The surge in interest came despite the ongoing saga at Woodford Equity Income Fund, one of the money manager’s other flagship funds. Woodford Equity Income was frozen on 3 June, meaning thousands of investors were unable to withdraw from a collective £3.7bn. The freeze came after a liquidity crunch caused by Woodford’s high-level of investments in illiquid assets, like stock in private businesses. The fund freeze has sparked an official investigation by the Financial Conduct Authority and dealt serious damage to Woodford’s reputation. “While there remain lots of questions about Woodford’s stock selection and valuation, some of our investors are clearly taking the view that some of the companies held in this trust may be big winners in the future, and that the current huge discount is therefore potentially attractive,” Moira O’Neill, head of personal finance at Interactive Investor, said. Woodford Patient Capital has seen its share price decline since the Equity Income fund was frozen and the share price is now at a 30% discount to the fund’s net asset value. “Time will tell whether the investors who bought into WPCT last month were catching a falling knife or whether they have bought in at a great time,” O’Neill said. Last week Woodford Patient Capital moved to reassure investors and prop up its share price by pledging to reduce debt, put in place extra supervision measures, and shake-up its board. uk.finance.yahoo.com/news/woodford-patient-capital-trust-interactive-investor-equity-income-fund-131346374.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAANkNHZm5xaaQt1yMp_t4JqA0q_7ljY0AOzpJxku43zfZyf1K9wQa4rb185VHE5Cspx9xAUsIrlbpSXAi89UVrCBj3tsQrkKauU9NQxc0rExVatK8ZrVKArCILnZ4fi8RXJeiFJh-kxeWLaDOBr1NcwWyEuU8GjQBWEg31A8-Pqc
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Post by Fletchsmile on Jul 9, 2019 12:01:16 GMT 7
As mentioned above, I'm not keen on the valuation and basis of the largest holdings in WPCT including Benevolent AI, and the concentration risk. Seems like they could be cut ==================================================================================== Woodford Patient Capital shares dip on unquoted stock fearsShares in Neil Woodford's investment trust fall as Sunday Times reports valuation of large holding in Benevolent AI could be cut. Update: Investment trusts were among the movers on the stock market this morning, with shares in Woodford Patient Capital (WPCT) dipping on fears over the valuation over one of its largest holdings, while Lindsell Train (LTI) rebounded from Friday's plunge. Shares in Neil Woodford's investment trust dropped towards the bottom of the FTSE 250, down 1.6% at 56.6p, after The Sunday Times reported the valuation of his holding in Benevolent AI could be cut. The paper said the unquoted company, which develops artificial intelligence for use in medical research, was raising money at a level well below the £1.6 billion valuation at which it is currently held in Woodford's funds. Benevolent AI is an 8.9% position in Woodford Patient Capital and a 5.2% holding in the suspended Woodford Equity Income fund, according to the most recent portfolio data as at the end of May. The Lindsell Train (LTI) investment trust meanwhile jumped to the top of the FTSE Small Cap index, up 4.6% at £1,584, rebounding from Friday's plunge on the news Hargreaves Lansdown (HRGV) will drop Lindsell Train's top-performing UK and Global Equity funds from its Wealth 50 buy list. Nearly half of the investment trust's portfolio is accounted for by a stake in Nick Train and Michael Lindsell's fund business. citywire.co.uk/wealth-manager/news/woodford-patient-capital-shares-slide-on-unquoted-stock-fears/a1248173
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siampolee
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Post by siampolee on Jul 9, 2019 15:14:24 GMT 7
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Post by chiangmai on Jul 9, 2019 16:54:09 GMT 7
In all fairness to the man Bailey) he'd only been thinking about it for three years, Plato used to think about stuff for a lot longer! BTW Bailey is in the frame for Carney's job at the BOE, given that's a four year term we might expect three years of thinking out of him and one year of doing, at best.
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AyG
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Post by AyG on Jul 10, 2019 8:21:39 GMT 7
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Post by Fletchsmile on Jul 15, 2019 12:47:59 GMT 7
Not sure whether he quit or was edged out.
Sounds very much like he could have been a contributor to poor decision making, given his focus on finding early growth companies.
His background doesn't sound particularly impressive. 5 years at Invesco after being in the army - which although can be a worthy profession isn't exactly relevant. So sounds like no financial training/education before Invesco. The 5 years at Invesco was probably useful experience, but sounds reasonably junior and started from scratch for someone in their mid 30's, before then moving on to Woodford.
Now likely in his early 40's, he has only 10 years in the field, 5 of which were at Woodford. You have to question ongoing/continuing education and learning, as well as experiences at Woodford. As only 1 of 3 analysts in that area, maybe he was out of his depth. If he was one of the top 3 in that area then that's not a lot of experience above him, considering his limited years.
Even if he had promising potential at Invesco, that's at a large established firm, which would have had stronger training, career support, mentoring, structure etc. Woodford as a smaller operation wouldn't be able to match that with only around 40 or so staff in total.
Sounds to me very much like another factor in Neil Woodford not having the same support structure and resources at Woodford, which we've touched on before.
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Post by Fletchsmile on Jul 15, 2019 12:54:07 GMT 7
Not really a surprise the institutional sales guy was let go, in the context of the key accounts they've lost. Not sure there was much he could do about it, but when key accounts like those go, that's a significant reduction in his scope. Woodford makes sales boss redundantInstitutional sales boss Will Deer is the latest employee to leave the business in the fallout from the suspension of the Woodford Equity Income fund. citywire.co.uk/wealth-manager/news/woodford-makes-sales-boss-redundant/a1249315
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Post by Fletchsmile on Jul 15, 2019 13:13:29 GMT 7
As usual, BOE and FCA etc are behind the curve when it comes to regulating these things.
Another review, and more consultations. Just hope it doesn't result in any knee jerk reactions that limit choices.
At the end of the day investors need to understand that in open-ended funds they can in some (uncommon scenarios) be forced to close temporarily. If investors aren't prepared for that risk, they shouldn't be investing in them. Close-ended funds like investment trusts may be a better option for some than open-ended unit trusts/OEICs.
At the same time close-ended fund investors, need to be prepared that in difficult times discounts can widen significantly, so it may be difficult to get fair value.
I disagree that investors should be forced into one or the other. In Woodford's case for example, I'm more comfortable with a temporary closure, than I am suddenly having a discount widen to over 30% with a lot of unpredictability and uncertainty around when it may narrow again. Though the latter does offer an opportunity for speculation on the upside, as the flipside of speculation around the spiral down. Some people prefer to reduce the speculation / sentiment elements.
It's a choice. Investors need to be make sure it's an educated one in their case.
========================================================= BOE warns open-ended funds could pose systemic risk The bank said there was a threat of large-scale redemptions from funds holding illiquid assets testing ‘the markets’ ability to absorb asset sales'.
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Post by Fletchsmile on Jul 19, 2019 18:30:50 GMT 7
Cashpile now is 657mn give or take, after raising another 200mn this month. I think he needs to riase at least 1 billion cash probably more. What is more important though is the value of the unlisted and Level 3 (quoted but not really liquid) that he has sold and still has. HL shows: - total fund value of 4.33 bn as (at 30 June?) - Top 10 including Benevolent AI 4.48% and Oxford Nanapore 2.58% (just before suspension) at 30 June, being the 2 largest unquoteds Trustnet: - total fund value of 3.47 bn as at 18 July - Top 10 including Benebolent AI 5.23% and Oxford Nanapore 3.01% BUT the portfolio analysis is only at 31 May
Woodford own website:
- total fund value of 3.46 bn
- Top 10 is slightly different to HL but supposed to be at 30 June too. It doesn't list %s and has Raven Property instead of Autolus per HL
====================================== Woodford lifts cash pile to £657m with NewRiver exitBeleaguered fund manager Neil Woodford has raised up to a further £200 million in disposals this month. citywire.co.uk/wealth-manager/news/woodford-lifts-cash-pile-to-657m-with-newriver-exit/a1249879
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