The Ian Cowie portfolio: a healthy return on this investment

by Ian Cowie from interactive investor |

A larger, older and wealthier world population increases demand for better biotechnology and healthcare.

Most share prices have caught a cold in the coronavirus crisis, with many showing signs of something worse. But biotechnology and healthcare investment trusts offer an opportunity to help fund the search for a cure, while doing well by doing good.

These trusts enable individuals who know nothing about epidemiology or cytokine storms to participate in the search for a vaccine via professionally-managed portfolios of scientific specialists. So we do not need to worry whether the latest trials of, for example, Gilead Science's (NASDAQ:GILD) (stock market ticker: GILD) anti-viral drug Remdesevir are encouraging or depressing, because we can maintain diversified exposure to pharmaceutical progress wherever it is achieved.

Never mind the theory, how does it work in practice? Compare and contrast the average conventional investment trust - that is, excluding venture capital trusts - which has shrunk shareholders’ capital by 9.5% over the last year, with the Association of Investment Companies (AIC) biotechnology and healthcare sector, where the average trust has delivered a positive return of 8.7% over the same period.

Nor is that outperformance atypical. Over the last five and 10-year periods, the AIC all-trusts average total returns were 27% and 129% respectively, while its biotech and healthcare averages were 63% and 457%.

No wonder the third most-valuable holding in my forever fund is Worldwide Healthcare (WWH), in which I first invested more than a decade ago. This is the biggest fund in the sector, with total assets of £1.9 billion, and also one of its best performers with one, five and 10-year returns of 26%; 80% and 442%, according to independent statisticians Morningstar.

Co-managed by Sven Borho and Trevor Polischuk at the specialists, OrbiMed Healthcare Fund Management, its top 10 holdings span the globe, including Takeda Pharmaceutical (NYSE:TAK) of Japan; Merck (NYSE:MRK), Bristol-Myers Squibb (NYSE:BMY) and Pfizer (NYSE:PFE) in America; Novartis (SIX:NOVN) in Switzerland and Novo Nordisk (NYSE:NVO), the Danish specialist in diabetes care.

Polischuk is cautiously optimistic. He said: “Many companies are accelerating their efforts in the anti-viral space in hopes of creating a treatment to help already infected patients.

“One of the global leaders in viral therapy, California-based Gilead Sciences, is leading this charge. Other efforts to treat patients are coming from all corners of the industry and globe. Takeda's acquisition of Shire and their plasma derived therapy business has led to an investigational new treatment to boost the immune function of infected Covid-19 patients.

“But a word of caution. As media reports on the coronavirus pandemic swing between hope and fear, stock markets are becoming increasingly volatile.”

For example, Gilead’s share price has risen by nearly a third from $61 earlier this year to $80 now. On Wednesday last week, 29 April, the company issued a statement that may support the higher valuation.

It said:

“Gilead is aware of positive data emerging from the National Institute of Allergy and Infectious Diseases’ (NIAID) study of the investigational antiviral remdesivir for the treatment of Covid-19.”

Events have moved quickly since then. Last Friday, America’s Food and Drug Administration (FDA) granted emergency use authorisation for Gilead’s drug, based on NIAID’s clinical trial which showed patients who received remdesivir usually recovered after 11 days; four days quicker than those who did not receive it.

Then, on Monday, the World Health Organization (WHO) said that it will ask the US administration and Gilead how remdesivir could be made more widely available. Dr Mike Ryan, executive director of WHO’s health emergencies program, told a news conference at the agency’s Geneva headquarters:

“There’s signals of hope there for the potential use of the drug.”

Against all that, the sad fact remains that many attempts to develop new drugs which begin hopefully end in disappointment. Bearing that risk in mind to avoid premature optimism, I paid £6.53 per share in International Biotechnology (LSE:IBT) on 17 April, noting Gilead was its second-largest holding at 6% of assets. IBT’s biggest holding, at 6.3% of assets, is Vertex Pharmaceuticals (NASDAQ:VRTX), whose Kalydeco was the first drug to win FDA approval for treating the genetic cause of cystic fibrosis.

IBT investment manager, Carl Harald Janson, emphasised the trust’s cautious and diversified approach: “International Biotechnology Trust has various companies within the portfolio which are focusing on different ways to tackle the virus.

“With so many potential shots on goal and access to only rudimentary data, picking a winner is difficult. Either way, we believe the sector exhibits long term strong fundamentals driven by innovative drugs to address high unmet medical need, such as cancer and cardiovascular diseases.”

This underlines the important point for long-term investors that, even after the coronavirus crisis has passed, the global population is likely to become gradually older and wealthier, with a corresponding increase in demand and the ability to pay for improved biotechnology and healthcare. In the meantime, most unusually for this sector, IBT yields 3.75% which pays shareholders to be patient.

Ian Cowie holds shares in WWH and IBT.

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

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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