Battle Against Cancer gains momentum

Taking a "fund of funds" approach to investing, it provides access to funds most of which private investors would be unable to invest in directly. But at the same time it avoids the high fees normally associated with a fund of funds approach.

The cost to investors is 1 per cent of the trust's NAV which is donated annually to cancer charities. The underlying funds have all agreed to waive their own fees to support the initiative, so investors benefit from the gross performance. Many of these specialist funds would normally have base fees of up to 2 per cent per year and then a 20 per cent performance fee.

That alone is attractive and significantly improves the benefits of compounding returns over time. But additionally BACT generates revenues for cancer research, charitable work and invests in the development of new drugs. Plus, no underlying fund can invest in tobacco stocks so it may appeal to investors who have ethical objections to those stocks.

BACT is the brainchild of Tom Henderson, formerly of Eden Capital, Moore Capital and Cazenove. Mr Henderson invested $25m (£15.56m) of his own money into the fund at launch. BACT has a high quality board of directors, chaired by Jeremy Tigue, the respected manager of the Foreign & Colonial Investment Trust.

The fact that investors receive gross returns, albeit subject to a 1 per cent charitable donation, is a good point. Performance has been good since launch - the trust posted 12 per cent increase in NAV in the first 9 months of 2013, meaning it is on track to meet its target of 10-15 per cent annual growth. However, it will be interesting to see how the portfolio performs in more difficult markets.

At 31 July, BACT's portfolio was invested 27 per cent in equities, 25 per cent in equity hedge funds, 15 per cent in commodities, 9 per cent credit and 7 per cent in cash.

With an offer price of £1 per 'C' Share, the opening NAV per 'C' Shares (assuming an offer size of £100m) is expected to be 98.6 pence. As BACT’s shares trade at a 4.56 per cent premium to NAV, the 'C' Shares represent an attractive entry point to either increase or initiate a position in the fund.

The proceeds of the 'C' share issue will be used to make follow-on investments in existing portfolio holdings and also introduce new mangers to the portfolio further diversifying the geographical areas and asset classes of the current portfolio.

Mick Gilligan, head of research at Killik & Co, says: "Some of the key risks this fund poses to UK-based investors are: underperformance by a large number of the underlying managers; a weak dollar (USD exposure currently represents 54 per cent of NAV); a lack of visibility over underlying positions and a zero return from the drug development projects. One or more of these scenarios or factors could also lead to the shares trading at a discount to net asset value. However, the lack of underlying fees more than compensates for these risks in our view."

The track record of this fund is not yet long enough to measure accurately the volatility of the performance. However, due to the high weighting to hedge funds, it should be less volatile than a traditional long-only global growth investment trust and a potential core holding in a portfolio or a 'one stop' shop for a smaller investor. Buy.

Source: BACT and Investors Chronicle as at 4 October 2013

Top 10 holdings (as at 31 July 2013)

Geographic breakdown (as at 31 July 2013)