Shares in Woodford Patient Capital fell an immediate 3.3% this morning as the company said it would take advantage of highly-bid secondary markets, cutting its premium from 13.4% to 10.4%.
In Woodford’s first substantial update on the fund six months on from launch, the fund pointed out that part of the lack of price sensitivity since June was due to heavy buying by tracker funds following its admission into the FTSE 250 index.
Nonetheless, active buyers now had a strong incentive to wait for new primary issuance rather than buying on the open market, noted Numis analyst Ewan Lovett-Turner.
‘We have been wary of the excessive premium, and believe there is potential for this to reduce over time, especially given the implementation of a tap issuance programme,’ he said.
The fund has pledged that any further issuance would be below the open-market price but would not dilute existing investors, meaning that shares would be priced at a premium to NAV.
The initial tranche of the fund was already expanded 60% from an originally planned £500 million to £800 million to cope with investor demand.
While most analysts have remained understandably supportive of an investment management team led by Neil Woodford, who is AAA-rated by Citywire, Ian Scouller of Stifel - which acquired trust broker Oriel Securities last year – stuck his head above the parapet to criticise the premium in June.
Putting a sell rating on the trust, he noted: ‘Given the elevated premium and the technical index factor, which appears to have created demand for the shares, we think it is worth highlighting the expensive nature of the shares to investors at this early stage.’