Investment trust insider on biotechs – James Carthew: I’m confident my biotech casualties will recover
A couple of my more disappointing investments sit in the biotech sector. I wrote about Biotech Growth (BIOG) in July last year. The investment trust had been through a rough patch, but fund manager Geoffrey Hsu was optimistic that things would turn around. He was right, for a couple of months, but since then both its net asset value (NAV) and share price have fallen again. The former top-performer is now barely in positive territory over five years.
However, since then Syncona (SYNC) has become the worst-performing closed-end fund over five years, having lost investors over 2% per annum on average in underlying asset value terms and 13.7% a year in share price terms as a big discount has opened up.
The main reason why BIOG has struggled has been its big overweight exposure to relatively small biotech companies. As in other sectors, small-caps have lagged large companies. In biotech, the collapse of Silicon Valley Bank was a big problem as it hit a disproportionate number of emerging biotech companies.
BIOG also has around 10% of its portfolio in Chinese biotech stocks. This has been a weak market and some of these holdings have done particularly badly. One flotation, YS Biopharma, collapsed in price and is now about 65 cents per share versus a listing price of $10. In addition, BIOG wrote down the valuation of one of its unlisted Chinese companies, StemiRNA, in September. Unquoteds make about 5% of assets.
The growth sell-off has been a factor in all of this. Companies with negative cash flow, which are commonplace in a sector where there are large upfront R&D and trials’ expenses before a product can be marketed, have been badly hit…. read more here