INVESTORS warned that there will be risks in Woodford’s latest trust, writes Jeff Salway
Investors banking on a re-run of Neil Woodford’s previous successes when the UK’s top fund manager launches a new investment trust have been warned to revise their expectations.
Demand for the Woodford Patient Capital Trust, initial details of which were unveiled yesterday and which will launch in spring, is likely to be huge as investors pile in on the back of the manager’s stellar track record.
The trust will invest in small quoted and unquoted UK companies and will be run on a performance-only basis, with no annual management charge.
It will be the second launch from Woodford Investment Management, the firm founded by the manager last year. His reputation was built up over 25 years at Invesco Perpetual, over which time his High Income fund returned more than 2,200 per cent.
While at Invesco Woodford also managed the Edinburgh Investment trust, before leaving last year to start his own operation.
The first Woodford Investment Management launch came in June with the Equity Income fund, run along similar lines to the Invesco propositions. The new proposition is quite different and certainly higher risk.
By investing primarily in small and often early stage UK companies the Patient Capital Trust will aim to generate long-term growth of 10 per cent a year. Around a quarter of the trust will be invested in UK blue chips, in order to secure dividends.
Its unusual fee structure will feature a performance charge linked to an “absolute return” target yet to be specified, rather than the typical annual management charge.
It’s unclear how much opportunity ordinary investors will get to buy into the new trust, which is targeting an opening issue of £200m through a placing and public offer, although there is scope for subsequent issues to push the trust up to £500m.
More details will be revealed in late February, when the prospectus is expected to be published ahead of an April stock market listing.
The offer will attract huge interest, predicted Tom Munro, owner of Tom Munro Financial Solutions in Larbert.
“No doubt the Patient Capital trust will provide outperformance given Woodward’s exceptional track record ruining the Edinburgh Investment Trust for five years as well as his Invesco Perpetual funds. In my view, his stock picking skills are very much unrivalled in the industry,” said Munro.
“With the added benefit of “performance fees” aligning Woodford to his shareholders this is welcome news indeed for investors, who will avoid charges in the event of underperformance.”
But there are concerns that many people will be attracted to the trust by the name at the helm, regardless of its suitability for them.
“The trust does carry a higher risk than the more diversified mainstream funds, with a target return of 10 per cent a year,” said Munro.
“For those who do wish to invest, I would suggest a total holding of between 5 and 10 per cent of a well-diversified portfolio.”
The nature of the trust means it’s only suitable for those investing for the long-term and able to tolerate short-term volatility. It also differs from Woodford’s previous ventures in that it isn’t primarily focused on income, the promise of which made his Invesco funds popular with older investors in particular.
Adrian Lowcock, head of investments at Axa Wealth, said: “Investors need to ask themselves does this fund meet their appetite for risk and are they able to invest for the long term, at least 10 years. This fund should be considered riskier than other smaller companies funds because it will invest significantly in unquoted investments.”
Patrick Connolly, a certified financial planner at Chase de Vere, agreed: “Many investors consider Woodford to be a safe pair of hands, but those looking at this new investment trust need to ensure their eyes are wide open,” he said
“This trust is much riskier than funds Woodford has run previously as it will invest in early stage firms including a much higher weighting to unquoted companies.”
Thousands face paying for mortgages after retirement
Thousands of Scots are set to enter their retirement with mortgages still to clear – including many who don’t know how they’ll be able to complete their repayments.
More than one in three Scots over 50 have yet to pay off their mortgage, according to new research by Age Scotland Enterprises. It found that 630,600 people with mortgage debts in that age group north of the Border still owe a total of £21.3 billion.
The figure includes nearly 400,000 homeowners in their sixties who still have a fifth of their home loan to pay off. One in four over 50s still paying their mortgage intends to sell their home eventually to clear the remaining balance, but a fifth admit to not knowing how they would finish repaying their loan.
The charity’s latest study also found high levels of stress among over 50s in Scotland, with almost a third struggling to make ends meet.
Logan Steele, general manager of Age Scotland Enterprises, warned that some homeowners could be tempted to take advantage of new rules taking effect in April making it easier to raid their pension savings. “This research highlights the ongoing financial pressures facing a generation that have a combined mortgage debt of £21bn and are either already retired or approaching retirement, “ he said.
“Housing debt can often be at the heart of people’s financial assets, so it is interesting and perhaps concerning that with pension reform arriving soon, so many older people are considering dipping into their pension pots to pay off their mortgages.”