In this article, I pitch top fund manager Neil Woodfords recently launched Woodford Patient Capital Trust (LSE: WPCT) against a possible alternative option in the shape of a mini-portfolio consisting of Allied Minds (LSE: ALM), IP Group (LSE: IPO) and Imperial Innovations Group (LSE:IVO).
What are the similarities and differences between the options? And which is likely to give you most bang for your buck?
Woodfords target weighting for his Patient Capital portfolio is: 25% mid/large quoted companies; 25% early-growth companies (typically quoted but may be unquoted); and 50% early-stage companies (quoted and unquoted). Woodford is very much seeking to exploit the same cutting-edge-technologies space that Allied Minds, IP Group and Imperial Innovations invest in, except that he includesmid/large cap exposure.
Woodford anticipates initially holding 50-100 companies; potentially more as the portfolio matures. Imperial, IP and Allied have stakes in 98, 90 and 20 companies, respectively (a combined 208).
Geographically, Woodford is targeting at least 70% invested in companies traded on the London Stock Exchange or incorporated in the UK. An equally-weighted Imperial, IP and Allied portfolio (lets call it IIPA, for convenience) would have about 67% invested in UK companies, via Imperial and IP, and 33% in the US, via Allied.
So, there are a number of broad similarities between Patient Capital and IIPA, with IIPAs lack of any large-cap exposure perhaps being the most marked difference. The table below shows the blended IIPAs top 10 holdings
|Oxford Nanopore Technologies||Unquoted||IP||12%|
|Circassia Pharmaceuticals||Quoted (FTSE SmallCap)||Imperial||9%|
|Spin Transfer Technologies||Unquoted||Allied||8%|
|SciFluor Life Sciences||Unquoted||Allied||6%|
|hVIVO (previously Retroscreen Viology)||Quoted (FTSE AIM)||IP||3%|
The IIPAtop holdings look a little scary against some of the familiar blue-chip names, such as AstraZeneca, that are likely to feature in Patient Capitals top 10.
But how has theunconventional IIPA portfolio performed? The table below shows some compound annual growth rate (CAGR) numbers for IP and Imperial. (Allied joined the stock market less than a year ago, so isnt included.)
|IP CAGR (%)||Imperial CAGR (%)|
|Last 3 years||12.4||13.5|
|Since 31/7/06 (Imperial flotation)||5.3||2.7|
|Since 15/10/03 (IP flotation)||12.0||n/a|
Now, what can we expect from Patient Capital. The trusts investment objective is as follows:
The Company will aim to deliver a return in excess of 10% per annum over the longer term. (Note: this is a target only and not a profit forecast and there can be no assurance that it will be met.)
Woodford appears confident of success, though, because Patient Capital is charging no annual management fee. His remuneration will come in the form of performance fees, dependent on him beating the 10% per annum hurdle.
It seems Woodford believes he can do at least as well as that long-term 12% CAGR delivered by IP in the table above and, whats more, achieve it with 25% of his portfolio invested in less risky FTSE 100/FTSE 250 companies.
While Woodford is renowned for his blue-chip nous, investing in early-stage/early-growth companies isnt unfamiliar to him. In fact, he actually holds Allied (4.1%), Imperial (1.3%) and IP (0.8%) in his mainstream Woodford Equity Income Fund.
Significantly, though, he has also put additional cash into a select few of the IIPA investee companies presumably in the belief that his subset will out-perform the whole; otherwise, why bother? And the same goes for a number of other early-stage/early-growth companies hes invested in that arent in the Allied, Imperial and IP portfolios.
Woodford will have some hard data on his stock-picking performance in this area of the market from past experience, and projections on what he might reasonably hope to achieve when combining this with a 25% weighting of his high-conviction large-cap picks.
As such, on balance, I tend to think that Woodfords Patient Capital could offer a better risk-reward profile than the alternative IIPA portfolio. Patient Capitals shares closed at 102p on the first day of dealing (21 April). Ill note the IIPA prices at the same date Allied (687.5p), IP (219.1p) and Imperial (490p) and perhaps revisit the subject in the future.
Finding small-cap winners before they emerge from under the radar can really boost your returns. Mark Rogers, the Motley Fool’s Head of UK Investing, believes he’s discovered just such an opportunity — and for a limited time only you can access his exclusive research report for FREE and with no obligation.
In “1 Small-Cap Stock Flying ‘Under The Radar‘“, Mark explains why this company has strong potential for near-term growth in the EU and Japan and long-term upside from potential entry into the US market. He not only explains the return he hopes to see from this stock, but also reveals “When I’d sell”.
To read Mark’s free report on this stunning small cap opportunity while it’s still available — simply click here now.
How To Get Started With Small-Caps
Investing in a handful of cracking small-cap companies could bag you much bigger returns than a stodgy set of blue-chip stocks and may make a smart addition to your existing portfolio if you can handle a little more risk.
To help get you started, The Motley Fools Head of UK investing has prepared this special small-cap report featuring one fast-growing stock idea that he believes has breath-taking potential.
G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.