August roundup

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Mitchell Fraser-Jones 4 September 2018 Est. reading: 7 min read

August Roundup

Mitchell Fraser-Jones
4 September 2018

“In the UK, the labour market is strong, we have record job vacancies, investment spending is growing, government finances are improving and we’re seeing growth in bank lending – the recent numbers reflect a UK economy that is performing much better than was forecast.

“Elsewhere in the world, however, the continued weakness of emerging market currencies, most notably in Turkey, Argentina and China, reflects the real economic stresses building in these economies, made worse by the rise of the US dollar. This is now starting to influence stock market sentiment more profoundly and I expect that to continue.”

– Neil Woodford

The US stock market reached a new all-time high during August, as Wall Street recorded the longest bull market in history. In itself, that provides sound reason for caution, but elsewhere in the world, this bull market is looking increasingly imperilled, with the UK and other European stock markets losing ground during the month, and several emerging markets, including China, already in bear market territory.

Evidence to support our more cautious view of the global economic environment has continued to mount. One bright spot is the UK economy, which continues to buck the trend and defy expectations of a slowdown. Indeed, as the data below demonstrates, despite the pessimistic forecasts that followed the vote to leave the European Union, the domestic economy is in robust health.

GDP FORECAST: 0.8% (JULY 2016) OUTCOME: 1.7% LATEST: 1.3% (Q2 2018) UNEMPLOYMENT FORECAST: 5.6% (AUGUST 2016) OUTCOME: 4.3% LATEST: 4.0% (JULY 2018) PUBLIC FINANCES FORECAST: £58.3BN DEFICIT (JULY 2016) OUTCOME: £45.8BN DEFICIT LATEST: £39.4BN DEFICIT (JULY 2018) "Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly." Bank of England Inflation Report, August 2016 "We're faced right now with a forecast, after a substantial stimulus package, where the unemployment rate goes from 4.9 to 5.5%, that's more than a quarter of a million people losing their job, after stimulus." Mark Carney, Inflation Report Q&A, August 2016 "Public sector net borrowing is now expected to fall more slowly than we forecast in March, primarily reflecting weak tax receipts so far this year and a more subdued outlook for economic growth as the UK negotiates a new relationship with the European Union." OBR Economic and fiscal outlook, November 2016

Sources: Lazarus Economics & Strategy, Office for Budget Responsibility, Office for National Statistics, Woodford.
Forecasts and outcomes relate to 2017.

UNEMPLOYMENT FORECAST: 5.6% (AUGUST 2016) OUTCOME: 4.3% LATEST: 4.0% (JULY 2018) PUBLIC FINANCES FORECAST: £58.3BN DEFICIT (JULY 2016) OUTCOME: £45.8BN DEFICIT LATEST: £39.4BN DEFICIT (JULY 2018) GDP FORECAST: 0.8% (JULY 2016) OUTCOME: 1.7% LATEST: 1.3% (Q2 2018) "Public sector net borrowing is now expected to fall more slowly than we forecast in March, primarily reflecting weak tax receipts so far this year and a more subdued outlook for economic growth as the UK negotiates a new relationship with the European Union." "Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly." "We're faced right now with a forecast, after a substantial stimulus package, where the unemployment rate goes from 4.9 to 5.5%, that's more than a quarter of a million people losing their job, after stimulus." Bank of England Inflation Report, August 2016 Mark Carney, Inflation Report Q&A, August 2016 OBR Economic and fiscal outlook, November 2016

Sources: Lazarus Economics & Strategy, Office for Budget Responsibility, Office for National Statistics, Woodford.
Forecasts and outcomes relate to 2017.

The Bigger picture

Read more of our latest ‘Bigger picture’ thoughts here

Patient Capital's summer of milestones

Many of the companies in the Woodford Patient Capital Trust portfolio continue to deliver encouraging operational progress, as evidenced below – please click on the links for further information.

Autolus

Autolus is at the forefront of a revolutionary immuno-oncology treatment, dubbed the ‘living medicine’, that is offering new hope to patients suffering from blood-related cancers such as lymphoma and myeloma. In June, it successfully transitioned from a private business to a public one via a successful IPO on Nasdaq.
Read more

Cequr

Cequr is developing simple-to-use insulin-based treatments, including an injection-free device that lasts longer than insulin patches used today. In July, the company acquired an approved type 2 diabetes product called One Touch Via from Johnson & Johnson, which it is planning to commercialise next year.
Read more

Kymab

Kymab, which is also backed by the Wellcome Trust and the Bill & Melinda Gates Foundation, is developing monoclonal antibody treatments – a type of therapeutic drug – to counter illnesses such as atopic dermatitis and cancer. In July, it announced that its potential atopic dermatitis treatment called KY1005 was moving to a phase II trial following positive results from the phase I study in healthy volunteers.
Read more

Oxford Nanopore

Oxford Nanopore is developing a new generation of DNA sequencers, some of which are small, portable and affordable. These are also the world’s only sequencers that can deliver DNA analysis in real-time. In June, its full year results highlighted that revenues tripled in 2017.
Read more

Immunocore

Spun out of Oxford University in 2008, Immunocore is at the forefront of the fast-growing field of immuno-oncology (treatments that use the immune system to kill cancers). In July it announced the start of a phase I study for its second ImmTAC molecule (IMCnyeso) in patients with solid tumours – as part of an ongoing collaboration with GlaxoSmithKline.
Read more

Sensyne Health

The company analyses NHS patient data using artificial intelligence algorithms to help healthcare companies discover new medicines. Founded by Lord Drayson the former science minister, the company (formerly known as Drayson Health) signed exclusive partnerships with three NHS trusts in July and, in August, successfully listed on the London Stock Exchange.
Read more

Genomics

Genomics brings together vast swathes of genomic data to improve the drug discovery process – making it faster, more cost-efficient and increasing the likelihood of success. In August, the company successfully completed a funding round and secured a collaboration with global pharmaceutical company, Vertex.
Read more

Proton Partners

The UK’s first high energy proton beam therapy provider announced in June that it had treated its first patient with proton beam therapy at its Newport centre – also a first for the UK. In August, the company announced the opening of its second cancer centre in Northumberland.
Read more

Federated Wireless

In July, the Federal Communications Commission (FCC) in the US issued a public notice that signals the start of commercial developments in shared spectrum. This has formalised the path for commercialistaion and Federated Wireless, founded by Allied Minds, is now well-positioned to see its large customers offering commercial services in the 4th quarter.
Read more

Conclusion

Operationally, the companies in the Woodford portfolios continue to, with one or two exceptions, perform positively. The market has remained reluctant to reward this operational progress with higher share prices, particularly for domestically-focused businesses. We are confident that will change in time, but something else is already changing. Weakness from the share prices of companies not held in the Woodford portfolios is becoming increasingly evident, as signs of economic stress continue to build, particularly in emerging markets. We expect this to continue and remain very confident that the funds are well-positioned to deliver attractive long-term returns, despite the more challenging global economic environment that we foresee.

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What are the risks?

  • The value of investments and any income from them may go down as well as up, so you may get back less than you invested
  • Past performance cannot be relied upon as a guide to future performance
  • The annual management charge applicable to the funds is charged to capital, so the income of the funds may be higher but capital growth may be restricted or capital may be eroded
  • The funds may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits
  • The funds may invest in overseas securities and be exposed to currencies other than pound sterling
  • The LF Woodford Income Focus Fund will be invested in a concentrated portfolio of securities – the fund is not restricted by reference to any geographical region, sector or market capitalisation
  • The LF Woodford Equity Income Fund may invest in unquoted securities, which may be less liquid and more difficult to realise than publicly traded securities

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund – or Key Information Document (KID) for the trust – and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice.

You should note that capital is at risk with these investments and you may get back less than you invested. The value of the fund or trust as well as any income paid will fluctuate which may partly be the result of exchange rate changes.

The price of shares in the Woodford Patient Capital Trust is determined by market supply and demand, and this may be different to the net asset value of the trust.

The Woodford Patient Capital Trust currently intends to conduct its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

Young businesses have a different risk profile to mature blue-chip companies – risks are much more stock-specific, which implies a lower correlation with equity markets and the wider economy. Long-term outcomes are more binary – extremely attractive rewards for success but some businesses will inevitably fail to fulfil their potential and this may expose Woodford Patient Capital Trust investors to the risk of capital losses. As it can take years for young businesses to fulfil their potential, this investment requires patience.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund’s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at www.fundinfo.com.

© 2018 Woodford Investment Management Ltd.
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