Go for growth with Worldwide Healthcare

This IC Top 100 Fund aims to achieve capital growth by investing globally in pharmaceutical, biotechnology and healthcare companies. Pharmaceutical and biotech companies account for 30 and 25 per cent of its portfolio respectively. This diversification reduces the volatility associated with a pure biotech focus, according to analysts at Numis Securities. They report that biotech has been the most volatile of all the main S&P 500 sectors over the past 12 months, most likely due to its exposure to the early stages of drug development.

But Worldwide Healthcare has delivered consistent share price outperformance over the past three and five years against its benchmark, the MSCI World Health Care Index. Over the last five years its share price delivered a 229 per cent cumulative total return, compared with 176 per cent generated by the index.

The sell-off in biotech over the last 12 months could also make it a good time to pick up the trust, as it has led to cheaper, more attractive company prices within the sector. The sell-off was partially sparked by comments made last year by US presidential candidate Hillary Clinton, who pledged to tackle high drug prices in the industry.

Although political uncertainty could be an issue going forward, the long-term drivers of returns in the sector remain compelling. These include the discovery of new drugs and projected increased spending on healthcare due to ageing populations.

The trust has a specialist and experienced management team. Samuel Isaly has managed the trust since its launch in 1995 and has over four decades of global healthcare investing experience. Sven Borho has been co-manager since 2013, but has been involved with Orbimed since 1991. Both are founding members of and have stakes in OrbiMed Capital, the specialist healthcare asset manager that runs the portfolio. Mr Isaly and Mr Borho are supported by more than 80 investment professionals including doctors, covering listed equities, private equity and healthcare royalties.

The trust's managers use fundamental analysis to find undervalued companies with a strong product pipeline, high-quality management teams and a robust financial position.

Sam Murphy, associate director of investment companies research at Numis Securities, says specialist knowledge is key to unlocking returns in this complex and rapidly changing sector.

"Stock picking is at the heart of the investment approach; the managers are agnostic to the benchmark, and this has led to a long-term preference for biotech, adds Mr Murphy. "OrbiMed uses its extensive resources to undertake fundamental research on the outcome of clinical trials and regulatory approvals, and assess the potential risk/return profile. Crucial to the investment approach is the managers' willingness to hold positions through the announcement of clinical trial results, which can often have binary implications for a company's future."

The portfolio has 76 holdings and the 10 largest are profitable, large-cap companies. As with most global healthcare and biotech funds, the majority of assets are in US stocks, as this is where many companies in this sector are listed. However, the trust also has exposure to emerging markets, Europe and Asia.

The trust trades on a 5 per cent discount to net asset value (NAV), which is slightly tighter than its 12-month average discount of 5.5 per cent. But Worldwide Healthcare Trust's exposure to a fast-growing sector, strong track record and specialist management team still make it a good option for investors seeking high growth with less volatility. Buy.

Source: Winterflood & *Association of Investment Companies, as at 8/08/16

Performance

Source: Winterflood as at 8/08/16

Top 10 holdings as at 30/06/16 (%)

Source: Frostrow Capital 

Geographic breakdown as at 30/06/16 (%)

Source: Frostrow Capital 

IC Tip Rating