Worldwide Healthcare Trust: July 2020 update

• The trust invests mostly in the US, and also has relatively high exposure to higher-risk emerging markets
• Biotechnology and healthcare companies held up well during recent volatility
• NAV and share price returned more than the benchmark in the 12 months to 31 March 2020.

How it fits in a portfolio

This investment trust aims to deliver long-term growth by investing in companies from around the world in the broad healthcare sector, which includes biotechnology and pharmaceutical companies. Investing in a single sector is a higher-risk approach than a more diversified one, so we think it should only form a small portion of an overall portfolio. The trust could be used within adventurous portfolios looking to increase exposure to the healthcare sector. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to NAV.

Manager

Sven Borho and Trevor Polischuk are the lead managers of the trust. Borho is one of the founders and a managing partner of OrbiMed, the company that’s managed the trust since it began in 1995. He also heads OrbiMed’s equities team and has run portfolios since 1993, having begun his career two years earlier. Polischuk joined the company in 2003 and became a partner in 2011. He’d previously researched US pharmaceutical companies but now focuses on the global pharmaceutical industry.

They’re supported by OrbiMed’s investment team, which currently has over 80 investment professionals. They have a range of backgrounds, including academia, finance and the healthcare industry itself. This provides the managers with a strong pool of expertise to draw on.

Process

Borho and Polishuk invest in healthcare companies from around the world they think have strong long-term growth potential. These range from large, established multinationals to higher-risk early-stage companies. They look for ones they think have underappreciated products in development, high-quality management teams and healthy finances.

They’ve found the most opportunities in the US, which is why currently nearly 70% of the portfolio is invested there. They’re also finding plenty of companies in higher-risk emerging markets, such as China, and invest more in them than in Europe or developed Asia. Sector-wise, biotechnology and pharmaceutical companies are the most prevalent and each make up around a third of the trust.

The managers can use gearing (borrowing to invest), which can help boost gains but increases losses so it’s a higher-risk approach. They also use derivatives to help them invest, which increases risk too. Investors should refer to the latest annual report and accounts and Key Information Document for details of the risks and charging structure.

Culture

OrbiMed was founded in 1989 and has become one of the world's largest investment companies specialising in the healthcare sector. They have grown to have offices in three continents, and given their focus on a single sector they strive to become true experts in their field.

Cost

The trust's current annual ongoing charge is 0.88%, which includes the 0.65% annual management charge and the performance fee. Specialist areas such as healthcare often require a lot more research, so we think the charges (which are currently the lowest in the AIC Biotechnology & Healthcare sector) are fair value. We’d prefer it if there wasn’t a performance fee though. If held in a SIPP or ISA the HL platform fee of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies.

Performance

During the 12 months to 31 March 2020, the period covering the latest annual results, the trust’s net asset value (NAV) and share price increased 6.5% and 8.0% respectively, as the slight premium increased. Performance was helped by biotechnology and healthcare companies holding up relatively well during the pandemic-induced market volatility. The trust did better than its global healthcare index benchmark, which rose 5.7% over the period. Twelve months is a short period to measure performance and past performance isn’t a reliable guide to future returns.

Chinese vaccine company CanSino Biologics was the trust’s strongest performer over the period. US medical insurance broker eHealth and US cancer therapeutics company ArQule also did well, although the trust no longer holds the latter as it was bought by another company for a large premium to the share price. Pharmaceutical companies were among the biggest detractors, including multi-national pharmaceutical company Alexion and Japan-based Takeda.

A 25p dividend per share was declared for the period, with the final payment to be made on 16 July. This is 5.7% less than the 26.5p dividend paid during the previous 12 months. The trust’s focus is on long-term growth rather than income though, hence its current 0.7% yield. Yields are not a reliable indicator of future income and income is variable and not guaranteed.

Over the long-term the managers have delivered superb returns. The trust has considerably beaten the global healthcare benchmark since Borho launched it in 1995*. Remember investments can go down as well as up in value so you may get back less than you originally invest.

Worldwide Healthcare Trust 10-year performance

Scroll across to see the full chart.

Past performance is not a guide to the future. Source: *Lipper IM to 30/06/2020.

Past performance is not a guide to the future. Source: Lipper IM to 30/06/2020.

See the factsheet for more on this trust, including charges

Worldwide Healthcare Trust Key Information Document