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Worldwide Healthcare Trust offers discounted exposure to global themes

The biotechnology sector has matured significantly over the past decade and is now producing net profits on an aggregate basis, making it an attractive sector for investors.
August 27, 2014

With more biotech products being approved and commercialised, such as drugs to treat cancer, multiple sclerosis and hepatitis, and strong research and development productivity in recent years, this sector now offers some well-established companies. Both the quantity and quality of opportunities in the investable universe has developed considerably in recent years, according to Jonathan Jackson, the head of equities at Killik & Co.

IC TIP: Buy
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points
  • Wide discount
  • Reasonable ongoing charge
  • Consistently outperformed benchmark
Bear points
  • Sector is high risk/reward

An investment trust with exposure to the sector and a solid long-term track record is Worldwide Healthcare Trust (WWH). It earned a place in the Investors Chronicle Top 100 Funds list 2013, and invests in a mixture of healthcare and biotechnology stocks. Its strategy is focused on capital growth, rather than income, as it only provides a 1 per cent yield.

Now could be a good time to buy the fund as it is looking relatively cheap. It is trading at a discount to net asset value (NAV) of 6 per cent, almost twice its 12-month average discount of 3.4 per cent.

Another attractive feature of this fund is the discount management controls. Its directors pursue an active discount management policy through share buybacks, with a view to limiting the discount to NAV to no more than 6 per cent.

Worldwide Healthcare Trust is managed by Samuel Isaly of Orbimed Capital. Mr Isaly has a strong track record and has been managing the fund since 2009, and he set up OrbiMed in 1989.

The fund has delivered consistent NAV outperformance of around 6.5 per cent a year over the past five years against its benchmark, DS/MSCI World Health Care Index, according to Investec data.

According to Morningstar data to 26 August 2014, it has delivered 163 per cent over five years, compared with its benchmark which produced a 119 per cent return. Over three years it has returned 120 per cent compared to 90 per cent from the benchmark, and over one year almost double the benchmark's returns, with 32 per cent compared to 17 per cent.

The fund gives investors exposure to a wide range of company sizes. It is mainly invested in large caps (72 per cent) and it has 28 per cent of its portfolio in small caps. The geographic split is predominantly North America (75 per cent), with 16 per cent in Europe and 11 per cent in Emerging Markets and Asia.

However, the biotechnology sector sits at the higher end of the risk/reward spectrum, according to Mick Gilligan, head of fund research at Killik & Co. "It's a sector that requires a high level of specialist knowledge, so for the majority of investors, an active fund is the most suitable for gaining exposure to it."

For an actively managed specialist investment trust, Worldwide Healthcare has relatively low fees. Its ongoing charge is 1 per cent, which is low compared with the healthcare sector in general. Even with its performance fee added in this is still only 1.22 per cent. This, coupled with the strong long-term performance and wider than average discount, offers good value to investors. Buy.

Worldwide Healthcare Trust

PRICE1,384pGEARING10%
AIC SECTOR Biotechnology & HealthcareNAV£1,473.6m
FUND TYPEInvestment TrustPRICE DISCOUNT TO NAV6%
MARKET CAP£665.05m1-YEAR PRICE PERFORMANCE 32.1%
No OF HOLDINGS621-YEAR  BENCHMARK PERFORMANCE 17.6%
SET UP DATE 28 Apr 19953-YEAR  PRICE PERFORMANCE 120.4%
ONGOING CHARGE PLUS PERFORMANCE FEE1.22%3-YEAR  BENCHMARK PERFORMANCE 90.2%
YIELD1.0%5-YEAR PRICE PERFORMANCE 163.9%
MORE DETAILS www.worldwidewh.com/index.php/wwh/home/overview/5-YEAR  BENCHMARK PERFORMANCE 119.3%

Source: Morningstar as at 26 August 2014

 

Top 10 holdings as at 31 July 2014

Holding%
Roche Holding AG 6.2
HCA Holdings Inc 4.4
Bristol-Myers Squibb Company 3.9
AbbVie Inc 3.8
Merck & Co Inc.3.5
Regeneron Pharmaceuticals Inc3.4
Amgen Inc 3.2
Biogen Idec Inc3
ONO Pharmaceutical Co 2.7
Actelion Ltd2.6

 

Geographic breakdown

Country%
USA75
Switzerland8.8
Japan4.6
Fixed Interest4
Ireland1.7
Bermuda1.7
Netherlands1.7
China1.1
Cayman Islands0.8
Malaysia0.5