I’d sell Woodford Patient Capital Trust plc to buy this fast-growing investment trust

Compared to this growth champion, Woodford Patient Capital Trust plc (LON: WPCT) is struggling.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Woodford Patient Capital Trust (LSE: WPCT) plunged to a new all-time low of around 74p per share at the end of last month. That’s because investors have become increasingly impatient with Neil Woodford’s offering, which is yet to produce any returns. 

The trust has suffered a 10% drop in net asset value over one year, and a 13% decline over six months, costing investors 22% since the beginning of September 2017. Following these declines, in early February the shares reached a discount to net asset value 13%, the widest gap since inception.

Having said all of the above, Patient Capital was established to invest with a long term outlook, so it shouldn’t really be judged on its performance over the past six months. Over the long term, Woodford and team are targeting a return of 10% per annum. Considering the fact that its portfolio is full of early stage and venture capital businesses, despite the recent performance, a double-digit annual return is still possible as these companies mature over time.

Nonetheless, the fact remains that this trust, as of yet, has still to produce returns for investors, which is why I would sell it and buy the HG Capital Trust (LSE: HGT) instead.

More established 

There are many similarities between these two trusts. The biggest is that they both invest in fast-growing, unquoted companies in an attempt to achieve market-beating returns for investors. 

However, HG invests in established businesses that have more predictable income streams and scope to generate better returns for investors.

Take for example the largest holding in the two trusts’ portfolios. Patient Capital’s largest holding is development stage biotech Prothena, which has no drugs currently on the market and recently lost its chief medical officer.

Meanwhile, HG’s largest holding is Scandinavian tech business Visma. This accounts for 18% of the portfolio and in the 11 years of ownership, Visma’s revenues and EBITDA have seen a compound annual growth of 17% and 23%, respectively. Visma is now positioned as one of the leading and largest SaaS companies in Europe. The two top positions in Woodford’s fund (Prothena and Oxford Nanopore), that together make up around 18% of assets, are both early-stage biotechs that have yet to produce any income.

Profit with profits 

I’m not saying Patient Capital won’t produce its targeted return for shareholders over several decades, but what I’m sure about is that the company’s approach is riskier than HG’s route of buying established businesses with room for further growth. 

The first few years of a company’s life is always the hardest, therefore buying when it’s already generating revenue and profit significantly reduces the risk to the acquirer. HG is also selling its investments at attractive multiples to generate impressive returns. Over the past year, the group’s net asset value per share increased 21.5% and cash realisations totalled £224m, of which £73m has been reinvested. Over the past 10 years, the trust has produced a compound annual return for investors of 11.7%, outperforming the FTSE All Share by 160%.

So, overall, considering its record of outperformance and value creation, as well as its different investing style, I believe HG is a much better buy than the Woodford Patient Capital Trust.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share 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.

More on Investing Articles

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »