Board puts £164m mid-cap healthcare fund in play as a possible merger candidate after a difficult half-year adds to its performance woes.
Bellevue Healthcare Trust (BBH) has announced a strategic review of its future options after posting another half-year of underperformance.
In the six months to 31 May, net asset value (NAV) of the mid-cap portfolio plunged 19.9%, most of it during the market turmoil over US tariff policy in February and March, trailing the MSCI World Healthcare index which fell 11.8%. The shares, which have benefited from the introduction in April of a zero discount policy, shed 13.8%.
That’s left shareholders nursing losses of 29% and 17.8% over three and five years, behind the 4.5% drop and 22.5% gain in the MSCI World Healthcare over the same periods.
Chair Kate Bolsover said the board would consult with shareholders and its corporate broker JPMorgan Cazenove with the aim of improving performance or otherwise achieving value for investors. She said the review was open to all parties, including the fund manager Bellevue Asset Management, and would conclude early in the fourth quarter.
Bolsover said : “The board has engaged regularly with the current investment manager in connection with the company’s performance and decided to initiate the strategic review in light of continued underperformance and the fall in size of the company.”
During the review, the company’s annual redemption facility will be paused. While the mechanism of allowing shareholders to exit once a year at close to NAV is good corporate governance, it has radically shrunk the company with 14% of shares electing to tender in 2023 followed by 36% selling last year.
However, the zero discount policy will continue. The policy has succeeded in narrowing the discount to 3.7% by the company buying back a further 40% of the shares to reduce BBH to £164m.
Activist Saba Capital had built a 14% stake but had been selling into the company’s share buybacks. The shares dipped 0.9% to 111.4p today.
Launched in December 2016, Bellevue fund managers Paul Major and Brett Darke enjoyed five good years but the Ukraine war in 2022 saw a seachange away from growth stocks that proved extremely challenging for their concentrated small and mid-cap portfolio. In response since the start of last year they had swung towards more liquid larger stocks with the proportion in companies below $10bn falling from 76% to 25% at the end of June, according to Deutsche Numis.
James Carthew, head of investment company research at QuotedData, said: “Bellevue Healthcare’s strategic review comes as no surprise. Performance has been markedly worse than competing funds, particularly over the last 12 months. The zero discount policy means that it is disappearing fast. Something has to change.”
Deutsche Numis analyst Gavin Trodd said: “We believe that a merger with another investment company in the life sciences sector should be considered, albeit this would likely be accompanied by a cash exit which may leave relatively limited assets to consolidate.”
