HBM Healthcare tops biotech trust league in 2017

HBM Healthcare tops biotech trust league in 2017

Swiss-listed HBM Healthcare Investments (HBMN.S) can claim to have been the best performing biotech-specialist closed-end fund  in 2017, according to an analysis by Marten & Co. The CHF1.1bn trust run by Swiss healthcare investment specialist HBM saw its share price rise from CHF99 to CHF134 last year and, with a dividend of CHF5.8, achieved a total return of 34.8% in sterling terms, beating those of the all other biotech-focused investment trusts monitored by Marten & Co by a significant margin (see table below).

HBM Healthcare out-performed the benchmark US Nasdaq biotech index (IBB) by over 24 percentage points – the index/ETF  rising 10.6% in sterling terms last year. HBM generated a 20% sterling-denominated increase in NAV, so the trust’s share price growth was helped by a closing discount. Surprisingly, HBM remains at a 13% discount, a figure that is much larger than any of the comparable funds in the UK and US.

The fund’s strategy is to hold a portfolio of 25-40 mostly US-listed public companies, with a major focus on those with products on the market or at an advanced stage of development.  The two main contributors to its strong performance in 2017 were Advanced Accelerator Applications, which was acquired by Novartis, and AnaptysBio, which rose strongly on the back of Phase IIa data for dermatitis.

Second placed among the 13 biotech specialist trusts was Worldwide Healthcare Trust  (WWH), managed by New York-based OrbiMed. The trust, which has a wider investment remit that most of its peers and includes med-tech and pharmaceuticals companies in its portfolio, achieved an almost 21% rise in share price total return.  Worldwide Healthcare was also helped by closing discount to NAV and indeed currently trades at a small (~2%) premium.

Third placed was International Biotech Trust (IBT), managed by SV Health Investors in the UK.  It notched up an 18% rise in share price, although this was considerably flattered by a closing discount, with its NAV up by just under 9% (see its monthly its December update) – IBT currently trades at a small premium (0.1%).

The  Swiss-listed BB Biotech and BB Healthcare, both managed by Bellevue Asset Management, ranked in fourth and fifth places, with a share price growth that more closely matched growth in NAV, at least in sterling terms. Indeed BB Biotech (see update) recorded a larger increase in NAV (18.7%) than either IBT or Worldwide Healthcare in 2017, so would have ranked a close second to HBM on this basis.

Three other US-listed closed end funds, Tekla Life Sciences, Blackrock Health Sciences and Tekla Healthcare Opportunities as well as the Orbimed-managed Biotech Growth Trust (BIOG)  manged to beat the benchmark index based on share price from the UK investor’s point of view.

By contrast, at the bottom of the table for 2017 performance was the struggling Woodford Patient Capital Trust (WPCT), was saw a small decline in its NAV in 2017 but a larger one in terms of share price, as the discount widened against the prevailing trend.  WPCT is invested roughly 70% in biotech (with the remainder in tech companies) and has suffered prolonged period of criticism from investors over a number of poor investments in biotech and the concentration of two large companies, Prothena and Oxford Nanopore which account for almost 25% of the fund.

The table below lists percentage change in 2017 of sterling-denominated NAV and share price total return (ie including dividends) for 13 biotech focused investment trusts and the benchmark Nasdaq biotechnology index.