Woodford Patient Capital could face ETF pressure on FTSE 250 relegation

Index trackers will look to shift holdings ahead of 23 September reshuffle

The announcement of Woodford Patient Capital Trust (WPCT) dropping out of the FTSE 250 could add further short-term pressure on the stock as exchange traded funds tracking the index offload their holdings.

The £408m investment trust is set to be relegated from the index later this month in FTSE Russell’s latest quarterly rebalance, the index provider announced on Wednesday.

On Thursday morning WPCT’s share price had fallen 3.9% to trade at 43.25p. Over the past year, the share price is down 44% while the net asset value has dropped 19.8%. Since the suspension of Woodford Equity Income fund on 3 June, WPCT’s share price is down 41%, according to FE data.

WPCT’s NAV took a beating last month as the trust’s holdings in one of the portfolio’s largest holdings Industrial Heat were devalued by Link and independent valuation firm IHS Markit. Link said the trust’s net asset value would decline by 3.4p a share as a result.

Seven Investment Management senior portfolio manager Peter Sleep said WPCT’s share price collapse took it past the threshold for exclusion from the FTSE 250 and was one of many reasons for hedge funds to short the stock.

ETF selling pressure 

Sleep said ETFs tracking the FTSE 250 will also have to sell WPCT which may pile further pressure on the stock until 23 September when the changes become effective. “After dropping out of a major index like the FTSE 250 stocks tend to have a short-term bounce,” he added.

He added: “There may be some reduction in Woodford Patient Capital Trust’s liquidity, but the main issue for WPCT is the valuation of the stock’s unlisted holdings, some of which have been marked down in the past few months. Sure to catch more headlines is the suggestion that Neil Woodford may be removed by the board of directors, although I am not clear what the impact will be on the stock price.”

Earlier this week it was announced that Ruffer co-founder Jane Tufnell had been appointed to the WPCT board while Steven Harris will step down on 30 September after four years.

Focus on company performance not the index

Association of Investment Companies (AIC) communications director Annabel Brodie-Smith said when an investment company drops out of an index there may be a short-term impact as passive funds sell their holdings.

However, she added the long-term impact is generally not significant as active investors focus on the performance and potential of the company rather than its index.

“Moving index doesn’t affect the liquidity of an investment company – the size of an investment company generally reflects its liquidity,” she said.

According to AIC and Morningstar data, out of 316 investment companies WPCT is the 52nd most traded company by value of shares over the past 30 days. The total value of shares WPCT traded over the last 30 days is £21.57m.

AIC data also shows WPCT traded an average of £1,263,294m per day in the past month. By comparison, Scottish Mortgage was the most traded with an average of £14,482,237m a day while Oxford Technology Venture Capital Trust was the least with £119,000.

‘Hokey-cokey’ on Amigo

Elsewhere in the reshuffle, loans provider Amigo has been dropped from the FTSE 250. The firm’s shares plunged more than 50% last week on the back of slowing growth due to regulatory pressure and recessionary fears sparked by the ongoing Brexit saga.

Amigo is one of the stocks transferred by Woodford Investment Management to Jupiter’s Ben Whitmore when he took over management of the Omnis Income and Growth fund. At the time the fund’s stake was at least 0.57%, according to FE Investegate.

Sleep said RNS reports filed with the London Stock Exchange reveal that Woodford has done the “hokey-cokey” on Amigo.

“During the first three months of 2019 he bought over 10% of the company or about 45 million shares. Bloomberg shareholder data suggests he holds less than 1 million shares today. Given the trajectory of the share price over that period, it is difficult to see if he made money for his investors from his moves.”

Meanwhile, the Foresight Solar fund has entered the FTSE 250 and the F&C Investment Trust is on the reserve list for the FTSE 100. The F&C trust celebrated its 150th anniversary last year along with a big marketing push.

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