Woodford acknowledges scepticism towards standout holding

Investment trust significantly outperforms the FTSE All-Share in 2018


Neil Woodford has acknowledged scientific scepticism towards one of his largest contributors to performance last year in the Woodford Patient Capital Trust.

Industrial Heat represented 6.25% of the £882.9m portfolio at the end of 2018 – the fifth largest holding – according to the full-year results published this month. According to the investment trust’s February factsheet, it now accounts for 8.9% of the portfolio and 2.3% of the Equity Income fund.

It was added to the Patient Capital Trust in 2015 prompting flak from the likes of the Financial Times, which described the science behind it as “widely-ridiculed bit of fringe physics”.

Last year, it contributed 8.7% to the closed-ended fund’s performance.

In the results for the investment trust, Woodford described Industrial Heat as a new energy company “focused on harnessing hitherto poorly understood or neglected energy science, including cold fusion”.

“We are fully cognisant of the scepticism that has surrounded the theory and history of this branch of science. However, we believe the potential disruptive implications of a new, substantially more efficient source of energy deem the various fields of neglected energy science worthy of further investigation.”

However, he said the company’s portfolio of technologies had shown “increasing promise” and highlighted the capital raise from other investors over the last 12 months.

Three companies that dominated returns

Woodford listed Industrial Heat among three companies that had dominated returns in 2018.

The net asset value of the investment trust rose 6.9% over the year compared with the 9.5% fall in the FTSE All-Share over the period. The closed-ended fund’s share price fell 2.8% with the discount widening from 7.5% to 15.9% during the year.

Alongside Industrial Heat, biotech business Autolus listed during the reporting period at $17 a share. It ended the year 90% higher than at IPO.

However, countering the positive news from both companies was the April setback for Prothena when its shares plunged 70% on news it would be halting development of its star drug, NEOD001, used in the treatment of degenerative disease AL amyloidosis.

Overall, Woodford pointed to the fact the portfolio’s success stories were “gradually beginning to account for a larger proportion of assets”. In 2018, 20 unquoted holdings were revalued upwards compared with 16 revalued downwards. A further 18 were unchanged.

He said: “Many things are beyond our control, and beyond the control of the companies in which we have invested. There will always be things that don’t go to plan within a portfolio like this, but with an appropriate balance of patience, support and determination, there is usually a path forward.”

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