Bellevue Healthcare (BBH) is seeking shareholder approval to replace its fund manager Bellevue Asset Management with Columbia Threadneedle, rename itself CT Healthcare Trust and drop the zero discount policy that has contributed to the investment trust’s decline in the past three years.
Concluding a three-month strategic review prompted by the trust’s poor performance and shrinking market capitalisation, chair Kate Bolsover announced the board had decided not to wind down the £150m company or seek a merger, but to appoint Columbia Threadneedle’s Kosta Kleyman to run the portfolio using its “strongly performing” Seligman Healthcare Strategy.
Healthcare remained a “compelling” sector driven by groundbreaking innovation and a diversity of companies and subsectors benefiting from strong intellectual property and regulation, she said.
The approach of Columbia’s Silicon Valley-based subsidiary Seligman was attractive because it was based on a conviction that healthcare had the widest dispersion between winners and losers of any industry. Kleyman and her team of eight analysts could exploit this through a mix of positive “long” and negative “short” positions, said Bolsover.
With over 90% of drugs and biotech research programmes ultimately failing, she said the opportunity for well-researched short trades profiting from falling share prices was “robust”.
In the short time since the strategy’s launch in July 2023, it had achieved “outstanding“ results, generating a 70.8% total return against the S&P Biotechnology index return of 14.6% and the 2.8% rise in the Russell 3000 Healthcare, index, a benchmark of US smaller health stocks. That period coincided with a biotech bear market providing plenty of opportunities to take short positions against struggling stocks.
“The Columbia Threadneedle healthcare strategy is designed to maximise shareholder return by exploiting these areas through a disciplined long/short approach, which looks to identify breakthrough opportunities while actively managing risk,” said Kleyman in a statement.
The fund manager holds a doctorate in pharmacy and previously led cancer drug commercialisation and clinical development for seven-years at companies including Genentech/Roche, AstraZeneca and Arcus.
By comparison, under Bellevue fund managers Paul Major and Brett Darke, the mid-cap focused, £150m BBH portfolio has seen its net asset value (NAV) decline 11% over three years.
Bolsover said a general shareholder meeting would be held to approve changing the company’s investment policy to one focused on positive absolute returns in all market conditions. The ability to short would aid portfolio risk management as well as provide capital opportunities where stocks were considered overvalued, she said.
The appointment of Columbia, a group boasting the £6bn F&C (FCIT), the country’s oldest investment trust, comes with several other changes.
The board wants to scrap the zero discount management policy and annual redemptions that have exacerbated market declines to shrink a portfolio that stood at £1bn three years ago.
In their place it will offer quarterly exits with investors able to withdraw up to 15% of the company’s share capital at asset value.
It hopes to grow the company again and will offer institutional investors regular month-end share issuances at above NAV if they want to invest large amounts.
While Columbia will bear the costs of changing the existing portfolio, it will earn a 15% performance of any returns over three-month interest rates. This is on top of the current 0.95% annual management charge, although the basis of this will move from market value to NAV that Winterflood analyst Shavar Halbertstadt “may encounter shareholder resistance”.
The board will consult with shareholders on the 4%-yielder’s dividends, indicating the level of distribution could change.
“We believe this will give shareholders a new, highly differentiated and diversified investment strategy which employs an innovative, proprietary long/short strategy to generate positive returns even when healthcare indices are in decline,” said Bolsover who will leave the board in April and be replaced by Sarah MacAulay, currently chair of Schroder Asian Total Return (ATR).
“The Columbia Threadneedle team has deep scientific, medical and technical expertise and we look forward to giving our shareholders the opportunity to benefit from their exceptional track record of generating positive absolute and relative returns,” added Bolsover.
Our view
James Carthew, head of investment company research at QuotedData, said: “I have been advocating a change of manager as a solution to Bellevue Healthcare’s woes, so the appointment of Columbia Threadneedle is a welcome development. Putting an end to the zero discount policy is also a good idea. However, quarterly liquidity opportunities, albeit limited to 15% of assets, could frustrate the manager’s ability to take a long-term view and shareholders will lose some of the benefits of an investment company structure.”
