Ian Cowie: how this trust sector got a shot in the arm

Sickly share prices today can sometimes prove to be just what the doctor ordered for healthy returns tomorrow. 

Seven investment trusts in the Healthcare and Biotechnology ward are enjoying a recovery from recent woes that delivered total returns averaging 9.2% in June. 

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That made this the top-performing sector last month, but these shares continue to be priced an average of 10.7% below net asset value (NAV).

Explanations include US President Donald Trump’s bark proving worse than his bite; bargain hunting among contrarians who claim prices are excessively depressed; and strong innovation by pharmaceutical companies.

For example, the first weight-loss Wegovy pill from the Danish giant Novo Nordisk AS ADR (NYSE:NVO) went on sale in Britain this week, sparing would-be dieters from hypodermic jabs. Most people would rather pop a pill than submit to an injection.

More serious illnesses and treatments helped Biotech Growth Ord (LSE:BIOG) to lead this Association of Investment Companies (AIC) sector over the last year, more than doubling shareholders’ money with a total return of 114%, following a meagre 14% over five years and 141% over the last decade. 

Geoff Hsu, a general partner at OrbiMed, which manages BIOG, explained: “Revolution Medicines Inc Ordinary Shares (NASDAQ:RVMD) presented data at the American Society of Clinical Oncology (a specialised branch of medicine dedicated to the prevention, diagnosis, and treatment of cancer) showing daraxonrasib, its oral inhibitor, doubled the overall survival of patients suffering from pancreatic cancer who had failed previous chemotherapy.

“This medicine will immediately become the standard of care in treating pancreatic cancer patients when it reaches the market later this year.”

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Despite such explosive capital growth recently, the absence of any dividends from BIOG could prove offputting for some investors. Income-seekers may prefer International Biotechnology Ord (LSE:IBT), which is also focused on new treatments for cancers.

IBT ranks second over the last year but leads the healthcare sector over the last five years and decade, while also yielding 2.6% dividend income, rising modestly by an annual average of just under 2% over five years. Its total returns over the short, medium and long term were 106%, 92% and 251%.

Fund manager Ailsa Craig said: “Therapies are now showing the potential to treat cancers that were previously deemed untreatable. This works by targeting the gene mutation which drives cell multiplication while avoiding some of the unacceptable side effects of earlier attempts.

“In pancreatic ductal adenocarcinoma (PDAC) - one of the deadliest cancers with very limited options - Revolution’s drug doubled overall survival in patients whose first treatment had already failed, which we view as a landmark result and, importantly, the first time a targeted therapy has worked in this disease.

“Beyond PDAC, Revolution’s broader ‘pan-RAS’ strategy could translate into a much larger addressable market if replicated across additional tumour types.”

RTW Biotech Opportunities Ord (LSE:RTW) ranks third over the last year with a total return of 98%, after bouncing back from a feeble 15% over five years; it lacks a 10-year record, having been launched in 2019. Once again, there are no dividends, but psychedelic drugs to treat depression helped to lift its spirits and share price.

Fund manager Oliver Kenyon said: “Around a third of the 300 million people living with depression globally don’t respond adequately to existing antidepressants. Conventional psychiatry has largely run out of answers but psychedelic-derived medicines, including synthetic psilocybin, are starting to change that.

“The psychedelic space has attracted scepticism, but this data is the kind that changes minds. We’ve been treating depression by adjusting serotonin levels since the 1980s, and it’s starting to hold up under rigorous trial conditions.”

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Sad to say, even medicine made out of “magic mushrooms” might not be enough to put a smile on my face about the long-term underperformer, Worldwide Healthcare Ord (LSE:WWH). As discussed here before, this £1.5 billion fund has seemed a bit depressed since its former manager, Sam Isaly, left nearly nine years ago.

However, even WWH has perked up recently with a one-year total return of 33%, following a frail 6.6% over five years and much better 113% over the decade. 

I have owned WWH shares for more than a decade, having transferred them from a paper-based broker in March 2014, when they were trading at £1.35, allowing for a subsequent 10-for-one split. They were trading at £3.90 this week, with a meagre 0.6% dividend yield.

Provided Trump continues to talk about price controls rather than prescribe them, I intend to hang on. Actually, I will remain a long-term shareholder either way, because the need for new treatments will not go away.

Nine in 10 new medicines fail to survive trials and make it to market, destroying massive amounts of capital in the process. But, on a brighter note, investing in healthcare and biotechnology at least offers shareholders the prospect of doing well by doing good.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Novo Nordisk and Worldwide Healthcare as part of a globally diversified portfolio of investment trusts and other shares.