March roundup

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Mitchell Fraser-Jones 5 April 2019 Est. reading: 6 min read

March Roundup

Mitchell Fraser-Jones
5 April 2019

“From time to time, markets become detached from valuation reality and while they are, fund managers like me appear to be incapable of delivering good outcomes. I appreciate that this can be an uncomfortable journey for investors but valuation is the only reliable predictor of long-term investment returns. I remain focused on capturing the opportunity that exists in parts of the market that have been left behind since we voted to leave the EU two and half years ago. The portfolios are populated with profoundly undervalued companies, many that are exposed to the UK economy. Crucially, the portfolios are positioned how I want them to be and are completely focused on a valuation opportunity, the likes of which I haven’t seen for more than 30 years.”

— Neil Woodford

Global equity markets continued to move higher in March, allowing the UK stock market to deliver its biggest quarterly total return in six years. Leadership of the UK stock market was, as has been the case for much of the last three years, dominated by the large, global dollar-earners, such as the oil majors, mining companies and consumer goods companies.

Data from across much of the global economy, has continued to disappoint expectations. The US economy in particular, now appears to be losing momentum, prompting the Federal Reserve (the Fed) to significantly loosen its policy stance. Previously the Fed’s guidance had suggested two more interest rate increases were likely this year, with quantitative tightening (QT – the process by which the Fed reverses years of quantitative easing by reducing the size of its balance sheet, thereby withdrawing dollar liquidity from the financial system) expected to continue throughout the year. Now, the next move in interest rates might be down and the pace of QT will slow from May and will conclude at the end of September.

As a result of the stock market rally so far this year, bond and equity markets are now telling us very different things about the economic outlook. The yield on many long-dated US Treasuries, for example, recently moved below that of shorter-dated bonds. This is known as an “inverted yield curve”, which is often seen as an early warning sign that more troubling economic conditions are on their way. It is hard to reconcile this price behaviour in bond markets with the more buoyant mood in equity markets. We have more sympathy with the view expressed by bond markets currently and are positioned accordingly.

We continue to focus the portfolios where there are more attractive economic fundamentals. The UK is one such place. During March, we saw better-than-expected economic data in many different parts of the UK economy, including industrial production, unemployment, wage growth and retail sales.

WPCT annual report

Today saw the release of the Woodford Patient Capital Trust’s annual report for 2018, which includes Neil’s review of the year.

Download the full report

Fund Performance

With so much perceived uncertainty surrounding the UK economy, we want to provide you with the full context on what’s been driving the performance of the funds (and indeed the broader stock market) for the past few years and the opportunities we believe lie ahead.

Equity Income Fund

View performance explanation

Income Focus Fund

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Patient Capital Trust

View performance explanation

Month in numbers

Source: Bloomberg, Woodford


Three-month UK employment change – the best level since late 2015


UK retail sales growth in February – consensus expectations were for a -0.4% contraction


Price per share that Biogen is paying to acquire Nightstar Therapeutics – a 72% premium to its undisturbed share price

August 2007

Prior to March’s yield curve inversion, the last time the US three-month interest rate was higher than the 10-year rate – shortly before the financial crisis


Year-on-year decline in the dollar value of China exports


German industrial production down in January, versus expectations of a +0.5% increase


Amount committed by Burford Capital to new investments over the last two years – more than twice the total amount it had committed in the previous seven years since formation


Average growth in UK weekly earnings data in January, ahead of expectations (3.2%)


US housing starts in February, well below expectations – January revised down too


Our strategy remains focused on avoiding the considerable risks that have built up in equity markets over the last decade of QE-fuelled exuberance and capturing the opportunity that exists in the few parts of the market that have been left behind. For the funds, this results in portfolios that have a strong but selective bias towards profoundly undervalued companies that are exposed to the UK economy.

Elsewhere, the Woodford Equity Income Fund and Woodford Patient Capital Trust portfolios continue to be positioned to capture an exciting long-term opportunity across a range of earlier-stage businesses exposed to the themes of healthcare innovation and disruptive technology more broadly.

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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 ongoing charges figure 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 – some of these security types could increase the funds’ volatility and increase the level of indirect charges to which the funds are exposed
  • The funds and trust may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the sterling value of these investments and the income from them, to fluctuate
  • 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 and the Woodford Patient Capital Trust may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value
  • 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. This means the price may be volatile in response to changes in demand
  • 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 investors to the risk of capital losses
  • 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 – it can take years for young businesses to fulfil their potential, this investment requires patience

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.

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.

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


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: 27 Old Gloucester Street, London, WC1N 3AX.

© 2019 Woodford Investment Management Ltd.
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