Asset Managers at Seneca Investment have been buying shares of Woodford Patient Capital Trust Plc (LSE: WPCT) since its shares were plunging at the London Stock Exchange after Neil Woodford extended a restriction on the withdrawal from Woodford’s Equity Income Fund.
One senior fund manager at Seneca commented that the recent crisis impacted Woodford’s close-ended offerings, which mainly created positions in the unlisted, Start-up companies too. At the current trading levels, the discount to net assets value gap has been widened more than 25%.
In December 2018, Seneca decided to invest its some of the gains which they realised from substantial surge in AJ Bell (LSE: AJB) stock price in WPCT. At the time of investing in December 2018, the rationale that supported their decision was that they felt that shares of the Woodford Patient Capital Trust Plc were quoting at 16% discount to its Net Asset Value.
The fund manager also commented that the recent stampede at the Woodfords Fund was understandable as it has a large retail base and restriction on withdrawal invoked fear among them. He also added we are not liquidating our positions in WPCT. Instead, we are selectively and opportunistically nibbling WPCT shares, when they plunged substantially on both June 03 and June 06.
About Neil Woodford and Woodford’s Crisis
Neil Woodford, also dubbed as Oracle of Oxford is a 59-year old British fund manager and co-founder of Woodford Investment Management LLP. Neil started his carrier with Red Pension Fund, and in the year 1987, he was scaled up to the fund manager position with Eagle Star. In the year 1988, Neil moved to Invesco Perpetual. He served Invesco for 26 years and gained a lot of reputation within the investment cult.
Neil stepped out from the position of Head of UK Equities at Invesco in the year 2014 to start “Woodford Investment Management LLP”. On the day, Neil announced his retirement from the Invesco in 2013, its shares plunged by nearly 7% in one day. In the year 2015, the investment managing business headed by Neil Woodford launched Woodford Patient Capital Trust, large listed investment trust and in April 2017, he launched LF Woodford Income Focus, equity fund. Within twelve months, investors in the Neil Woodford’s fund witnessed a return of 18% against the average surge of just 2% on the London Stock Exchange.
His devotion towards Warren Buffet style of long-term investing placed him as one of the respected fund managers in the UK, and many started calling him as “Oracle of Oxford”.
But lately the Oracle of Oxford started grappling into his own picked stocks, and this led to creating a flurry of withdrawals from his funds. So, what was the turning point for Neil Woodford?
Over the past couple of years, the most respected fund manager of the UK and most consistent stock picker was witnessing bad times, since he picked several bad businesses into his portfolio. One of them is Kier Group Plc (LSE: KIE), which recently announced that its performance would be substantially poorer than what they communicated to investors at the start of 2019.
Kier Group plc is a property, residential, construction and services company. The Company’s segment include property, residential, construction and services. The property division consists of property development and structured finance and operates across diversified sectors with a focus on industrial, commercial, retail, leisure sectors and public sectors. The residential business consists of mixed tenure housing partnerships and private house building. The construction division comprises the United Kingdom regional building, the United Kingdom infrastructure and international businesses. The services division comprises strategic and local authority highways maintenance, utilities, housing maintenance, Kier Workplace Services and environmental services. It operates across sectors, including defence, education, health, highways, housing, industrials, power, property, transport and utilities.
Shares of Kier Group Plc (LSE: KIE) have tumbled approximately 79.17% on a year-to-date basis, and in the past three months only, its shares have tanked more than 75%. At the time of writing (before the market close, as on July 17, 2019, at 11: 26 AM GMT), its shares were quoting at GBX 81.75/share and declined by 3.8% against the previous day closing price.
Mr Neil had also been denounced for putting his investor’s money into the illiquid or unquoted investments, despite knowing the fact that investors could withdraw their money at any point of time. As performance has plunged and big investors like Kent Country Council had asked Woodford to return their money, the fund manager has had to redeem assets to meet the pay-out requests.
However, in order to quickly realise the unquoted or illiquid assets, it should be available at a steeply discounted price, which in turn deepens the losses for Woodford’s fund. Therefore, flight of outflow meant that the fund manager has to liquidate his investments at the knockdown prices because market traders and arbitragers knew about the problems the business is facing.
Hours after Kent County Council tried to withdraw £263 mn, Mr Woodford restricted withdrawal on June 03, 2019 for four weeks. He said that the suspension was in the best interests of the investors in the fund, and he was extremely sorry for the withdrawal suspension. He also added a strategy is in place to deal with the turmoil, the strategy involves redemption of all unquoted or illiquid assets, which are tough to liquidate quickly at a reasonable price because there is a fewer potential buyer for those assets.
Neil apologised to investors and said that, when the appropriate time will come, we will remove the suspension from the fund so that one can buy and sell as normal. The present situation which we are witnessing was that we were experiencing huge outflow from the fund, which led an increased number of liquidations, and we were observing that the stock market was speculating on the fact that Woodford Asset Management LLP has to be an offeror of the stocks in order to meet the increased redemption level.
He said, during the suspension, we will try to execute our plan to reduce our fund’s exposure to the unquoted securities down to Zero and proceeds of those will be invested in FTSE 350 and FTSE 100 securities.
Hargreaves Lansdown (LSE: HL) dragged into the Woodford’s crisis.
The troubled Woodford’s Investment Group also dragged Hargreaves Lansdown (LSE: HL) into its deepening crisis as Hargreaves had long promoted Woodford’s flagship fund to an array of retail customers. At the end of 2018, Hargreaves investors owned approximately 31 per cent of the LF Equity Income Fund, and the group has recommended more than £1.1 mn to invest in troubled fund managers fund.
Shares of Hargreaves Lansdown Plc (LSE: HL) have declined more than 6.7% in the past three months. At the time of writing (before the market close, July 17, 2019, at 11:30 AM GMT), shares of the HL were quoting at GBX 2,070.0 and added 0.63% against the previous day closing price.
Stock Price Performance: WPCT
Daily Price Chart (as on July 17, 2019), before the market close. (Source: Thomson Reuters)
Post the announcement of the suspension of withdrawal, shares of the Woodford Patient Capital Trust Plc (LSE: WPCT) nosedived at the London Stock Exchange, and on a year-to-date basis, its shares have plunged by around 33%. On a YoY basis, shares of WPCT were down by approximately 32.9%, and in the past one month, its shares have slumped by approximately 6.03%. At the time of writing (before the market close, as on July 17, 2019, at 11:26 AM GMT), shares of the Woodford Patient Trust Plc were quoting at GBX 54.98 and increased marginally against the previous day closing price. In the year-ago period, its shares have registered a 52w high of GBX 93.95 and a 52w low of GBX 51.80, and at the time of writing, shares were quoting around 41.5% below the 52w high price level and approximately 6.1% above the 52w low price level respectively. Also, the 30-day Relative Strength Index of the stock was hovering near to oversold zone, which indicates the stock is oscillating in a bearish zone, and pain would continue in near-term.
Also, shares of the WPCT were quoting considerably below the 200-days simple moving average price, which is a bearish indicator for stock and indicates that the stock has entered a long-term bearish zone. Any near-term recovery in the price looks challenging for the company.
Meanwhile, many market analysts have compared Woodford’s liquidity crisis with the Lehman Brothers and Bear Stearns crisis. However, market regulators across the globe have worked hard to prevent repetition of Lehman Brothers and Bear Stearns crisis again.