Bellevue Healthcare Trust (BBH) has released its annual results for the 12 month period ending 30 November 2022.
- BBH reported a NAV total return of -4.1%, and share price total return of -11.9%. This compares to the 14.1% return of its benchmark, the MSCI World Healthcare Index. BBH’s underperformance is largely the result of its focus on mid-cap, high growth companies, with a strong preference for US based firms.
- Relative to BBH’s specific return objections, to beat the total return of the MSCI World Healthcare Index (in sterling) on a rolling 3 year period and to seek to generate a double-digit total shareholder return per annum over a rolling 3 year period: BBH has underperformed its benchmark by 14% over the 3 year period (based on its financial year end), and generated a 3 year share price total return of 6.3% annualised.
- BBH issued 27.9m new shares in the first half of its financial year. BBH then received redemption notices for 30.6m shares in November, more than offsetting the issuance during the year. BBH traded on an average discount of 1.6% over the year.
- BBH follows a policy of paying out 3.5% of preceding year-end NAV as dividends, in two equal instalments. BBH has paid an interim dividend of 3.235p in September and will pay an equal dividend in May 2023. Shareholders are given the option to take the dividend as a script dividend.
BBH’s investment managers, Paul Major and Brett Darke, commented:
“In what is generally a stable sector from a regulatory perspective, with very visible long-term demand growth drivers, the macro demand picture seldom changes quickly. As a consequence, stock-picking wins out over sub-sector allocations and the best long-term strategy has been to own the true innovators or the stocks where any future success has been fully discounted by the market for some reason or otherwise where one can get comfortable that this is the wrong conclusion. However, these approaches did not work well in 2022 and few active managers were able to beat the index. Generally speaking, the more tilted you were toward innovation and growth, the worse the performance.
“Has the regulatory or payor landscape changed in a way that merits lower valuations/higher risk premia on top of that risk-free rate increase? The simple answer is no. What about funding for non‑commercial and non-profitable entities? The oft-touted biotech funding crisis (i.e. the risk that companies will not be able to raise money to continue operations) is a canard. Bad companies (of which the post-COVID IPO and SPAC boom created many) struggle and deservedly so. The good ones do not.
“During 2022, we actually had quite a low level of exposure to companies that we expected would need or want to raise money on a 1-2 year view (six of 37 owned during the period), and five companies actually raised money through additional equity issuance during the year, but that low exposure still didn’t help performance-wise.
“In conclusion, 2022 feels like an aberration to us and we continue to expect our investors to be handsomely rewarded for their patience in the fullness of time. To paraphrase (and misquote) Hemingway, these sorts of things happen slowly at first and then very quickly, so you need to stick to your knitting rather than try to rotate into these things when the timing feels right. The cream rises to the top eventually, even if the milk is sour.
“It bears repeating that the stated investment strategy leads to a portfolio with certain inherent characteristics: dollar dominance, mid-cap focus and low benchmark correlation and it must be obvious from the comments in the previous section that such factor characteristics have been negatively correlated with wider market performance over the past year and 2022 again saw an underperformance versus our key comparator index, the MSCI World Healthcare Index.”