by Dave Baxter, Investors Chronicle, May 14, 2024:
Areas like biotech can be racy at the best of times and especially vulnerable to shifting investor whims. That much has become evident in recent years: the average investment trust in the AIC’s Biotechnology and Healthcare sector made a whopping 21 per cent share price total return in 2020 as Covid-19 threw the industry into the spotlight, but not all times have been quite so rosy. The average fund lost 10 per cent in 2022 as higher interest rates hoved into view, for one. Share price discounts to net asset value (NAV) have also persisted, with the sector average coming to 14.5 per cent.
Brighter times may now lie ahead. A sense that rates might have peaked has already helped fuel a fierce rally in the sector, with Stifel analysts noting that big gains have come since the market “turned” in late October 2023. Some structural opportunities may also have opened up.
“Covid-19 created massive excitement for vaccine-related firms, followed by an associated crash as the pandemic passed. Since then there has been new and ongoing excitement in weight-management drugs; and – as interest rates started to climb and sentiment turned against capital-hungry growth stocks – a bear market in biotech that is now easing, as big pharma companies snap up their smaller, more innovative rivals,” said QuotedData head of investment company research James Carthew.
As ever, some trusts have been bigger winners than others. The Biotech Growth Trust (BIOG) has made a startling share price total return of almost 40 per cent from 27 October to 10 May, with Polar Capital Global Healthcare (PCGH) shares returning 25 per cent and Worldwide Healthcare (WWH) managing 22 per cent. Syncona (SYNC) is slightly down over the period, but all other names in the sector have registered double-digit gains.
The sector is a fairly disparate one but some notable differences have emerged in terms of performance. The more generalist healthcare funds, which take more of a diversified approach spanning different subsectors, have had slightly different fortunes, with the Polar Capital fund ahead of Worldwide Healthcare over the period discussed earlier and much more significantly in front over five years.
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