Right stock selection will put you a fairway to success

The Masters, held at Augusta, is the first major golf tournament of 2015 and whatever the outcome, it will renew my misguided belief I can actually play the game to some sort of respectable level.

Anyone who triumphs at the Masters show’s patience, methodical planning and expertise in shot selection.

Swap “shot selection” with “stock selection” and you have the subject of this article, renowned fund manager, Mr Neil Woodford.

It’s a tedious link I know, but with the nice weather we are enjoying, the golf bug has once again bitten me.

For those who are new to the financial pages of the press, Mr Woodford has a reputation as a fund manager who can provide stability and reliability even in turbulent market conditions.

At Invesco Perpetual, he was responsible for managing assets in excess of £33bn.

He is now the founding partner of Woodford Investment Management and seeking investors.

Mr Woodford came into our offices recently to present on his new Patient Capital Investment Trust.

I think it would be fair to say he is concerned by the complete lack of patient capital serving to nature and monetise the UK’s incredibly strong intellectual property.

Once fully invested, approximately 25 per cent of the fund will compromise large and mid-capitalisation companies, a further 25 per cent will be invested in what are described as “early-growth companies, typical quoted but may be unquoted … likely to be revenue generating but not yet cash flow positive” and the balance of circa 50 per cent will be invested in “early stage companies, quoted and unquoted, typically pre-revenue and pre-profit”.

This will clearly provide an investment experience significantly different to that of the vast majority of UK focused funds.

Mr Woodford has been engaged in these types of investments, although not to such a large degree, for around ten years, over which he’s gained numerous intellectual, financial and industry contracts, an advisory collective he refers to as his “trusted network”.

This network is absolutely critical to the success of the trust.

The clue is in the name.

Investors wishing to harness the theme will have to wait considerable time in order to reap the rewards, however, the fund will look to diversify risk across the underlying company life cycle in order to smooth the life cycle and reduce exposure to early stage failure.

It’s no coincidence that Woodford Investment Management has located its office just outside of Oxford, with world renowned universities conveniently on its door step.

However, this type of investment methodology can also support the North-East’s intellectual excellence.

Mr Woodford reportedly invested £5m into the North-East’s online only internet bank, Atom, in the last quarter of 2014.

Any business, North-East based or otherwise, will appreciate a patient shareholder base whose aims and aspirations are aligned to their own.

A shareholder base of this ilk allows businesses to plan five to seven years ahead instead of the more typical investment period of, say, three years.

Mr Woodford certainly makes a solid case for this best of British, niche product; however, investors should be prepared for a volatile ride with high dispersion in returns.

As always, please do get in touch should you like to discuss any aspects of this article.

I have backed Close House’s very own Lee Westwood for the Masters, five pounds each way at 40/1. Feel free to commiserate/congratulate me when this goes to print.

Gary Welford is an investment manager at Brewin Dolphin. The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin. No director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.