Ian Cowie: this trust’s performance is shameful, but I’m hanging on

A trust has destroyed 71% of shareholders’ capital over the last five years, but our columnist hopes for redemption. 

Every long-term investor’s portfolio contains at least one embarrassment like Bertha Mason; the madwoman, locked in the attic, in Charlotte Brontë’s novel Jane Eyre. These are the shares we would rather not talk about, even if - like Edward Rochester’s first wife - they used to be close to our hearts or wallets.

Step forward Schroder UK Public Private Trust (LSE:SUPP), in which I invested at 100p at launch in April 2015, and topped up at 76p in March 2018. The shares cost 31p now. Ouch.

Try not to snigger but this trust seeks capital growth from UK listed and unlisted shares, with its objective statement adding it “aims to deliver a return in excess of 10% per annum over the longer term”. No wonder City cynics joke that many long-term investors started out as short-term speculators before it all went wrong.

More seriously, I bought on a 10-year view, hoping to help commercialise British innovations in biotechnology, healthcare and online financial services. True, the first half of my decade-long timescale has not gone well, but we are only just over halfway there.

SUPP was better known when it traded as Woodford Patient Capital, but plunged into obscurity along with its former manager, the fallen “star” stock-picker, Neil Woodford. Financial advisers who used to babble about their familiarity with the famous fund manager - it was always “Woody this” and “Woody that” - now rarely mention his name or the £525 million total assets that remain in the trust he built.

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That’s understandable when SUPP has destroyed 71% of shareholders’ capital over the last five years, according to independent statisticians Morningstar via the Association of Investment Companies (AIC). This includes a 29% collapse during the last year and, as a result, SUPP shares now trade 33% below their net asset value (NAV).

So, Mr Market is effectively offering anyone brave enough to buy today a “buy one, get one free” or BOGOF deal. This double-digit discount is all the more remarkable when you consider that both the other investment trusts in the AIC’s “Growth Capital” sector - Merian Chrysalis (LSE:MERI) and Schiehallion (LSE:MNTN) - are trading above their NAVs at premiums of 30% and 22%, respectively.

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Has the pendulum of financial fashion swung too far against SUPP and does it offer value for contrarian investors? Iain Scouller, investment trust analyst at the stockbroker Stifel, pointed out: “When funds investing in technology and healthcare are trading at a premium to NAV, SUPP continues to languish at a discount despite having 70% of its portfolio in tech and healthcare.

“With the trust out of favour, if we take a contrarian view and can see several scenarios for a positive re-rating. These include realisations of investments, with cash used to repay debt; securing of a longer term debt facility; write-ups of investments to reflect good earnings performance and higher valuations of comparable listed companies.”

Recent signs of progress include a partial realisation of SUPP’s stake in the biotech tiddler, Oxford Nanopore, that still accounts for 16% of the investment trust’s assets. Oxford Nanopore claims to have developed a new generation of tests to detect the virus that causes Covid-19.

SUPP has also raised cash from its stake in the smartphone payment system, Yoyo Wallet. More importantly, the cancer care specialist, Rutherford Health, which is SUPP’s largest holding at 19% of assets, claims to have used its proton beam therapy to treat more than 100 patients and agreed with NHS Shared Business Services to care for others via NHS trusts.

SUPP’s second-biggest stake, at nearly 18% of NAV, is the Durham-based financial app, Atom Bank, which has been approved as a new lender under the government’s Coronavirus Business Interruption Lending Scheme.

Sceptics may suspect an element of grasping at straws here, especially as SUPP has net debt of £105 million under a £150 million loan facility, which is due to expire, potentially requiring repayment, in January next year. Such a high degree of gearing is a worry with SUPP’s debts equal to about 25% of its NAV.

At least the fund managers have good reasons to want SUPP to survive and succeed. Schroders’ ongoing charge is just 0.43% per annum and there will be no performance fee until 2023. After then, a fee of 15% of the excess will be applied if the NAV exceeds 77p per share.

That seems somewhat academic while SUPP’s NAV languishes at 46p. Even so, this shareholder would be happy to see Schroders earn their bunce.

Here and now, few financial advisers or wealth managers want to talk about SUPP or its shameful performance. But this long-term investor aims to hang on and hope for redemption, however much it hurts to do so. Or, as Jane Eyre says: “I would always rather be happy than dignified.”

Ian Cowie is a shareholder in Schroder UK Public Private Trust (SUPP).

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

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