Interactive Investor

Fund spotlight: Syncona

8th March 2021 11:36

Liberty Godfrey from interactive investor

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An interactive investor analyst offers a view on one of our ACE 40 choices.

The ACE 40 trust

Listen or read about the trust, it’s your choice.

Syncona (LSE:SYNC) investment trust aims to achieve superior long-term capital appreciation from investing in life science companies, and targets an annualised return of 15% per annum. The trust was founded in 2012 by the Wellcome Trust and in 2016 became public through a reverse merger.

A 13-person team provides scientific, operational and commercial expertise, and is overseen by Martin Murphy, Chris Hollowood and John Bradshaw.

The trust’s strategy is to establish, build and fund companies to turn exceptional science into a dynamic portfolio which captures the strong risk-adjusted returns available from commercialising life science. The aim is for the companies to deliver their product to market.

The team have a nine to 12-month period of due diligence before establishing a company, starting with the science, followed by a strategic investment plan and strategy. The setting of a strategy during the formation of the business is unique for investment managers.

What does it invest in?

The trust has a market capitalisation of £1.8 billion and a current portfolio of 10 companies within cell and gene therapy, with a target of 15 to 20 companies. The strategy will typically own around 70% to 80% of companies at the point of initial investment, with the rest typically owned by academics and option schemes for managers. 

The trust is unconstrained by sector and geography, but it does have a bias to the UK, as this is where the team finds the most opportunities.

Freeline (NASDAQ:FRLN), a clinical stage gene therapy company based in the UK and Germany, is a significant holding. Other investments include Autolus (NASDAQ:AUTL), a clinical stage biopharmaceutical company focusing on the development of cell therapies, and Achilles, a clinical stage biopharmaceutical company developing innovative cancer immunotherapies.

Performance

Given the trusts unique investment strategy, it does not have a published benchmark or direct peer group, however, on an absolute basis it has experienced strong performance over both the long and short term. On an absolute basis, the trust has returned 3.9% over one year, 30.8% over three years, and 102.7% over five years to the close of trading on 5 March.

We have used a combination of the MSCI World index and MSCI Life Sciences Tools & Services index in the table below, but this is far from a perfect benchmark for comparing Syncona’s performance. For example, the performance of the MSCI World has been led by tech shares in recent years, which Syncona does not invest in.

Total Return 05/03/2020 - 04/03/2021 05/03/2019 - 04/03/2020 05/03/2018 - 04/03/2019 05/03/2017 - 04/03/2018 05/03/2016 - 04/03/2017
Syncona 2.21 3.40 32.17 15.40 9.54
MSCI World/MSCI Life Sciences Tools & Services 26.00 17.66 30.74 16.19 37.14

Source: Morningstar, Total returns in GBP. 

Tends to trade on a high premium

The trust typically trades on a large premium, which has recently fluctuated around 20% to 35%. 

While in most cases it is not prudent to buy an investment trust on such a high premium, Syncona is a special case given the nature of its portfolio in backing early stage companies that are hard to value. On a long-term view, we regard the value of the underlying investments as conservative, which is why we are happy to recommend the trust on such a high premium.

Donates some of its returns to charity 

The trust is committed to a donation of 0.35% of its net asset value (NAV) each year to charity. Although the trust has the ability to utilise gearing up to 20%, the managers do not currently need to make use of this function. The ongoing charges for the trust are 1.4%.

Why we recommend it:

The trust features on our ACE 40 list as specialist adventurous option and falls within the ACE ‘Embraces’ category, meaning that the trust adopts a targeted approach to make a positive impact.

The expertise of the team is what gives Syncona its competitive edge, as well as its niche area of investment within innovative areas of cell and gene therapy. Its technical type of investment means that the trust could be an interesting option for investors.

From an impact perspective, this area of the market is a means to gaining exposure to a sector that works to benefit people’s health.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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