Ian Cowie: this theme is a long-term winner

28th October 2021 11:28

Our columnist’s ‘forever fund’ has plenty of exposure to a part of the market that will be boosted by long-term demographic and economic trends.

We might never learn to love the coronavirus but we may have to learn to live with it, as millions of us look forward to booster vaccines soon with the prospect of top-up jabs annually ever after. That’s the bad news. The good news is that it will all add up to extra demand for healthcare services and shares.

Better still for value-seeking investors, Mr Market seems a bit depressed with all the dismal stats about long Covid, etc, and some share prices in this sector do not yet reflect the extra billions of pounds set to be spent here soon. These include a capital lump sum of £5.9 billion more for the NHS, pre-announced by chancellor Rishi Sunak and his Treasury elves ahead of this week’s Autumn Budget.

Plus, the new health and social care levy will add 1.25% to National Insurance Contributions (NICs) next April and is expected to raise an extra £12 billion annually for this sector.

Both will boost long-term demographic and economic trends, already well under way, as an older and wealthier global population is both willing and able to pay more for healthcare. When we were young, we thought we could live on sex and sunshine but, sad to say, now we know we need our meds.

Even before the most recent rises, the amount we spend on the NHS is about double the budget for education and pensions or four times what we pay for defence. Healthcare’s share of UK public spending is estimated to rise to 44% of the total, compared to 27% two decades ago, according to the Institute of Fiscal Studies.

Coming down from the clouds, this DIY investor has been a shareholder in Worldwide Healthcare (LSE:WWH) for more than a decade. This £2.6 billion giant - managed by Sven Borho and Trevor Polischuk of Frostrow Capital since 2013 and 2015 respectively - is the eighth-most valuable holding in my ‘forever fund’.

Despite healthy medium and long-term returns, recent performance has been a bit sickly. For example, WWH delivered total returns of less than 3% over the last year, following 79% over the last five years and 492% over the last decade, according to Morningstar via the Association of Investment Companies (AIC). As a result, WWH shares are currently trading 2% below their net asset value (NAV), compared to an average premium of nearly 1% over the last 12 months.

Another ‘Biotechnology & Healthcare’ sector share that I own is also going through a fallow period, after strong medium to long-term returns. International Biotechnology (LSE:IBT) shares actually shrank with negative returns of 8% over the last year after altogether more satisfactory 61% positive performance over five years and 476% over the last decade.

Partly because WWH pays nugatory dividend income of 0.6%, I paid 653p in April last year for stock in IBT that cost 726p this week. In addition to that 9% growth, IBT continues to yield 4% income which pays shareholders to be patient while we await healthier returns in future.

Two reasons to be hopeful are that this £314 million investment trust is managed by Kate Bingham, who is probably best known as the first head of the UK Vaccine Taskforce, and Ailsa Craig. They have headed up a team of specialists at SV Health Managers since 2001 and 2006 respectively, so nobody can accuse these specialist stock-pickers of short-termism.

As I seem to be the last man left in England who does not regard himself as an amateur epidemiologist or virus expert, I am not going to even attempt to compare and contrast IBT and WWH’s underlying assets. This is a specialist sector where I am perfectly happy to pay ongoing charges of 1.39% and, much better, 0.87% respectively for IBT and WWH’s professional stock selection.

However, for full disclosure I had better add that I also own shares in Pfizer (NYSE:PFE), the America pharmaceutical giant that was first to gain authorisation for a Covid vaccine last November; Novo-Nordisk (NOVO), the Danish world-leader in diabetes treatment; Essilorluxottica (EURONEXT:EL), the Franco-Italian maker of one-in-three spectacle lenses; Smith & Nephew (LSE:SN.), the Hull-based maker of artificial hips; and Sonova (SIX:SOON), the Swiss hearing aids giant that, ahem, few folk have heard of.

Nobody wants to think about ill-health or infirmity, but everybody is likely to experience one or the other, sooner or later. Big pharma gets a bad press, but it wasn’t journalists or politicians who found the Covid vaccine. Investors should face financial reality, whether we like it or not, and remember it’s an ill wind that blows no good.

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

Ian Cowie is a shareholder in EssilorLuxottica (EL), International Biotechnology Trust (IBT), Novo-Nordisk (NOVO), Pfizer (PFE), Smith & Nephew (SN), Sonova (SOON) and Worldwide Healthcare (WWH) as part of a diversified portfolio of investment companies and other shares.

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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