Interactive Investor

Ian Cowie: three health and biotech trusts I wish I’d owned

15th April 2021 11:22

Ian Cowie from interactive investor

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My Covid vaccine investments have done well, but I could have done much better by doing this.

A year ago this week I did something a bit brave. When many other investors fled falling share prices amid the first wave of the coronavirus crisis, I invested in a professionally-managed portfolio of companies seeking to find a vaccine.

As reported here at that time, I bought shares in International Biotechnology Trust (LSE:IBT), a £302 million investment trust launched in 1994 and run by SV Health Managers, formerly Schroder Ventures.

But was I rewarded for taking that risk? Yes, up to a point, but the devil is always in the detail with finance.

For example, while IBT yields healthy income of 4.1% and a total return slightly above 13% over the last year, I would have done better to simply top up a long-standing holding in this sector; Worldwide Healthcare (LSE:WWH), launched in 1995 and managed by Frostrow Capital. This £2.4 billion giant, in which I have held shares for more than a decade, yields negligible dividend income of 0.7%, but generated total returns of nearly 18% over the last year.

That demonstrates how high a price investors sometimes pay for novelty, when we might do better to top-up holdings already in our portfolios. Put another way, there is some practical wisdom in the poet’s advice to “hold onto nurse for fear of finding something worse”.

On a brighter note, and somewhat surprisingly, both IBT and WWH did better over the last year than Pfizer (NYSE:PFE), the pharmaceutical giant that was first to get a vaccine approved. PFE does not feature in the top 10 holdings of either IBT or WWH. As reported elsewhere, I bought PFE on the dip last January at $37 and again in February at $34 per share and they trade at the former price today, while yielding a healthy 4.26% income.

Three star trusts in 2020

That raises another important and painful point for me. My prime objective of building a retirement portfolio where I could live off its natural yield - that is, drawing dividend income rather than realising capital gains - has sometimes led me into 'value traps', or at least shares which delivered decent income but failed to match higher total returns available from more growth-focussed funds and shares.

For example, several investment trusts in the Association of Investment Companies’ (AIC) Biotechnology and Healthcare sector beat both IBT and WWH over the last year. They are led by RTW Venture (LSE:RTW), launched in October 2019, that shot the lights out with total returns of 64%.

No yield, natch, but ongoing charges of 0.74% are marginally lower than WWH’s 0.88% and make IBT’s 1.39% look positively over-priced. New York-based managers, RTW Investments, claim to run $5.7 billion of assets and employ 39 professionals, most of whom have MD, PhD or other advanced scientific degrees. Trading at a modest premium of 1% above net asset value (NAV), this is one to watch.

Biotech Growth (LSE:BIOG) came second last year but - perhaps more importantly - first over the last five and 10 years with total returns of 59%, 120% and 730% respectively. Launched in 1997 and also managed by Frostrow Capital, ongoing charges are 1.1% per annum.

Third place last year was held by BB Healthcare (LSE:BBH) (BBH) with a total return of 53%. Launched in December 2016, BBH has the same costs as BIOG but yields 3.2% dividend income.

So RTW, BIOG and BBH all succeeded in making returns from IBT and WWH look relatively sickly last year. The latter has done so well for me for so long that sustained underperformance would be needed to shake my faith - or its top 10 position by value in my ‘forever fund’.

By contrast, IBT is not so big or long-established. Another issue to ponder is the recent departure of its manager Carl Harald Janson, although ongoing managers include Kate Bingham, who has been there since 2001, and Ailsa Craig (pictured above), since 2006.

Bingham is probably best-known as chair of the UK Vaccine Taskforce, which she led for most of last year. Criticism of her appointment, she is married to a Tory MP, was offset by praise for the prompt distribution of vaccines.

Either way, continuity at IBT should not be a problem. However, I remain unsure whether I am paying too high a price for income today in terms of total returns foregone tomorrow.

Against all that, perhaps grumbling about double-digit rewards in a single year is just another sign of how a bull market can make investors greedy. If so, it may soon be time to be fearful.

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

Ian Cowie is a shareholder in International Biotechnology Trust (IBT), Pfizer (PFE) and Worldwide Healthcare (WWH) as part of a global portfolio of investment trusts and other shares.

Ian now has a well-deserved week off. His next column for interactive investor will appear on 29 April.

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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