According to a regulatory filing published on Tuesday, Blackrock’s stake in the investment trust has fallen from 11.17% to 10.66% as it deploys 1.55% of the Patient Capital Trust’s stock for securities lending.
The changes took place on 26 April, according to the filing. Two days earlier, the Patient Capital Trust annual review showed the investment trust’s share price fell from 91p to 84.5p.
Blackrock’s lending of the stock has increased close to three-fold since 9 April, when a filing showed the asset manager had increased the stock on loan from 0.54% to 1.02%.
Architas investment director Adrian Lowcock said shorting is one of the most likely reasons for borrowing stock, although investors could also use it to meet short-term obligations or gain voting rights without paying full price for the stock in the market.
The Patient Capital Trust AGM is due to take place on 12 June.
7IM senior portfolio manager Peter Sleep said a short seller may be using the Patient Capital Trust as a proxy for Prothena, noting companies that are in trouble command high borrowing fees.
“The [Woodford Patient Capital] stock was probably readily and cheaply available to borrow, and if Prothena went down, it is logical that WPCT would go down too as Prothena was one of its largest positions,” Sleep said.
Prothena accounts for 9.12% of the investment trust, the third largest holding after Oxford Nanopore (10.08%) and tech company Benevolent AI (9.13%).
In January, Neil Woodford dismissed criticisms about Prothena from US hedge fund Kerrisdale, stating their job as a short seller is to scare the market.
However, last week Kerrisdale was vindicated as shares fell 70% as it announced it was halting development on its star drug, NEOD001, which failed key clinical tests.
Both Lowcock and Sleep said shorting is unusual for investment trusts.
Lowcock said: “Shorting is usually for individual companies as you’d expect investment trusts’ performance should be linked to their underlying investments, although this is clearly not always the case.
“Woodford Patient Capital has the mixture of a high profile fund manager and a lot of unlisted illiquid investments providing plenty of potential and opportunity for the trust to be both volatile and indeed perform differently to its underlying assets.”
Woodford Investment Management declined to comment.
