The FTSE reshuffle is calculated on closing prices on 29 May, while the move becomes effective from 18 June. Woodford’s investment trust currently has a market value of £683m, which is over 30 places below the cut off point.
Tilney’s managing director Jason Hollands said fully-replicated FTSE 250 index trackers will hold investment trusts and that could lead to some technical selling of Woodford Patient Capital, potentially leading to a widening out of the discount.
The current discount on the Patient Capital trust is 9.2%.
However, Architas’ investment director Adrian Lowcock played down the impact, noting most trackers don’t hold investment trusts.
He said although Woodford’s Patient Capital trust falling out of the FTSE 250 is disappointing, it shouldn’t have too much impact on the share price.
Lowcock added: “Ultimately investors shouldn’t read too much into this as the trust focuses on long term investments which are higher risk and in doing so it was always likely that the bad news would come ahead of any good news and therefore the trust would lag the performance of the wider market especially in a bull market.”
Stay patient
Like Lowcock, AJ Bell’s investment director Russ Mould said many index funds tend to exclude investment trusts, stating the implications for Woodford Patient Capital’s near-term share price performance are not as great as they would be for an individual stock that falls out of the FTSE 100 or FTSE 250.
He said the possible demotion reflects how the underlying portfolio has performed and how investor sentiment has turned.
Mould added: “Investors who still hold the shares and believe in both the trust’s long-term mandate and Mr Woodford’s stock-picking skills are nevertheless unlikely to worry about any possible demotion – and nor should they.
“The clue is in the trust’s name and it is best-suited to patient, long-term investors who are willing – and able – to sit out short-term price swings in the trust’s shares and some of the inevitable setbacks that will come with a collective that has this sort of portfolio.”
Earlier this month, Blackrock upped its stock lending of Woodford Patient Capital Trust, raising questions about whether a short seller was betting against falls in the investment trust or one its large underlying holdings.
