Healthy returns from an established specialist
Worldwide Healthcare Trust Plc (LONDON:WWH) invests globally in companies involved in healthcare-related activities. It is overweight biotechnology and underweight pharmaceuticals relative to its benchmark MSCI World Health Care Index, and as such has outperformed on the back of strong returns from biotech over the past three years and in the sector’s recent bounce back from a spring sell-off. Its managers – whose sole focus is on life sciences – adopt a bottom-up investment process focused on understanding both the science and the financials behind potential investments. In spite of strong performance, WWH’s discount has widened recently and may indicate an attractive entry point for long-term investors.
Investment strategy: Rigorous search for growth
WWH is one of two investment trusts run by New York-based specialist healthcare investment manager OrbiMed (the other is the Biotech Growth Trust). OrbiMed’s managers have a variety of scientific and financial backgrounds and focus on rigorous bottom-up analysis and monitoring of potential investments. WWH has a capital growth focus but also pays twice-yearly dividends. It invests globally in large- and small-cap companies across the healthcare spectrum, with the majority of the portfolio invested in biotech and pharmaceutical stocks.
Sector outlook: Long-term story still intact
While demographic, scientific and regulatory developments all provide a supportive long-term backdrop for healthcare-related sectors, the correction experienced by biotech stocks in March and April 2014 should serve as a reminder that such stocks can be volatile in the short term and are vulnerable to both adverse business developments and changes in investor sentiment. Valuations for biotech and pharma stocks suggest biotech stocks may offer better value in current market conditions given their generally superior growth prospects.
Valuation: Discount narrower after summer blip
At 26 September, WWH’s shares were trading at a 3.7% discount to cum-income net asset value. This is in line with the average over one year and narrower than the three-, five- and 10-year averages, having closed significantly in recent weeks (from 8.0% on 10 September). The board targets a discount of 6% or below and bought back 100,000 shares into treasury in early August; further buybacks are in prospect if the discount widens from its current level.
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