Worldwide Healthcare Trust: July 2024 update

• The trust focuses on healthcare companies across the globe, benefitting from some strong long-term trends which have boosted the sector

• It is managed by one of the most experienced teams in the healthcare sector

• The board have been buying back shares over the last financial year

How it fits in a portfolio

Worldwide Healthcare Trust aims to grow your money over the long term by investing in healthcare companies across the globe, including pharmaceutical and biotechnology companies. Investing in the trust could help boost long-term growth potential but this is a specialist area so adds risk. We think funds and investment trusts investing in a specific sector should usually only form a small part of a well-diversified investment portfolio.

Investors in investment trusts should be aware the trust can trade at a discount or a premium to its net asset value (NAV).

Manager

Worldwide Healthcare Trust has been managed by OrbiMed, a healthcare investment company, since it launched in 1995. OrbiMed founder and managing partner Sven Borho and co-partner Trevor Polischuk are currently the trust’s lead managers.

The managers are supported by a large team of around 80 investment professionals focused on the healthcare sector. This includes over 20 degree holders with MD and/or PhD credentials, healthcare industry veterans and finance professionals with over 20 years of experience. The managers also benefit from the expertise of OrbiMed’s private equity team, which looks at companies that aren’t yet listed on the public stock market.

Having the ability to draw on the resources of the investment team is crucial for Borho and Polischuk, as it can help provide fresh investment ideas, but also further enhance the level of research and analysis on each company or sub-sector within healthcare. Though, they make the final decision when it comes to an investment.

Process

The global healthcare industry is growing, benefitting from several long-term trends such as an aging population and the advance of scientific innovation in treating disease. These trends have caused a steady increase in the level of healthcare spending in the industrialised world, led by the US which now spends over 17% of its GDP on healthcare. This makes for a powerful growth profile which the managers believe should provide real investment opportunities.

Healthcare companies are subject to a variety of events which can impact success, ranging from the outcome of a clinical trial or merger, to regulatory changes like drug pricing or new product launches. These factors can impact a company share price quickly and add to volatility, so the team ensures the trust is well-diversified and that they only invest in companies they judge to be high quality.

The managers look for companies they feel offer attractive long-term growth potential. They should be financially strong, have underappreciated products in development or a high-quality management team. These can be found in both higher-risk early-stage companies and larger, more established firms worldwide. The managers also have the ability to invest in some higher-risk smaller companies.

Over 70% of the trust is invested in North America, with the rest spread across Europe and parts of Asia, including Japan and some higher-risk emerging markets like India and China. The managers continue to find investment opportunities across these regions and are particularly excited about healthcare innovation.

New technology advancements, as well as accelerated drug discoveries and cures can present exciting areas of opportunity. The managers invest in companies that could benefit from innovation, such as emerging biotechnology.

A portion of the trust is also invested in unquoted companies - companies that are not currently listed on the stock market. These companies are higher risk as they tend to be more difficult to buy and sell than listed shares. The managers can use gearing (borrowing to invest), which can boost gains but also increases losses, so is a higher-risk approach. As at the end of March 2024 the trust’s leverage (which includes both gearing and the trust’s overdraft) stood at 10.8%, which is marginally higher than the previous year when leverage was 10.5%.

During the trust’s financial year (12 months to the end of March 2024), the managers did not add any new unquoted investments, being cautious on the outlook for public offerings of small and medium-sized healthcare companies. As at the end of March the trust had 6.3% invested in unquoted companies, which was a small decrease from the 6.7% allocation at the end of March 2023.

The managers also have the flexibility to invest in derivatives, which if used, increases risk.

Culture

OrbiMed is a global investment firm that invests in companies engaged in the discovery and development of biopharmaceutical products, medical technologies, medical devices, diagnostics, drug discovery tools, and healthcare information technology and services companies.

OrbiMed invests across the global healthcare industry, from very early stage companies just starting out in the industry to large publicly-traded companies. They invest across private equity and credit markets, as well as public equity markets. This breadth of coverage allows the investment professionals to learn from each other and share ideas across the lifespan of companies.

The team at OrbiMed is highly qualified, and have a vast amount of experience in the healthcare industry.

OrbiMed was founded over 25 years ago and is now one of the world's largest investment companies specialising in the healthcare sector. Their offices span three continents and, given their focus on a single sector, they strive to become true experts in their field.

ESG Integration

Environmental, Social and Governance (ESG) factors have become an increasingly prominent focus. The managers believe there’s harmony between companies that act responsibly and those that can succeed in the long run. As a result, OrbiMed conducts negative screening of potential sectors or companies that may harm public health or wellbeing.

Evaluating a company’s performance based on ESG concerns or strengths provides guidance to the team when making potential investment decisions. ESG factors aren’t the sole consideration when making an investment decision though.

ESG scores from external parties are used by the managers to help evaluate healthcare companies. To ensure robustness they also assign their own research and scores to companies. A part of this includes company engagement, where the team encourages them to have positive governance practices or achieve their climate targets.

Cost

The ongoing annual charge over the trust’s financial year to 31 March 2024 was 0.90%, which includes the trust’s performance fee. This is an increase from last year’s charge of 0.80%. Investors should refer to the latest annual report and accounts, and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 p.a. for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn't apply if held in a Fund and Share Account or a Junior ISA. As investment trusts trade like shares, both a buy and sell instruction will be subject to our share dealing charges within any HL account except online deals in a Junior ISA.

Performance

The trust’s long-term performance has been strong, outperforming the global healthcare index since it launched in 1995. Past performance is not a guide to the future. Remember, investments can go down as well as up in value, so and you could get back less than you invest.

More recent performance has been mixed. The trust experienced an exceptional period of performance between March 2020 to March 2021, aided by the managers’ investments in biotechnology companies. But the next 24 months were not so strong.

In the 12 months to the end of March 2024 performance was much better, with the trust returning 8.6% in share price terms, and 12.0% in net asset value terms. The benchmark rose by 10.9% over the same period. Over the year the discount (the difference between the share price and the value of the underlying assets held in the fund) widened from 9.3% to 12.1%.

The sources of performance were quite diversified, from sectors such as pharmaceuticals, healthcare equipment & supplies and healthcare providers and services.

Eli Lilly and Novo Nordisk, both pharmaceuticals companies, were the biggest contributors to performance. Both companies are pioneers of GLP-1 agonists (better known as obesity drugs) and benefitted from very positive trial data over the year which showed their drugs not just to be beneficial in obesity and diabetes, but also in cardiovascular care for obese patients. Intuitive Surgical was another large contributor following the approval of their new surgical robot.

Detractors included Biogen, a US biotechnology company, and Eisai, a Japanese pharmaceutical company, which partnered in the launch of a new drug for Alzheimer’s patients. Despite the efficacy of the drug, there were issues around its rollout, which has proved more difficult than expected.

Since the beginning of 2022, share price discounts to net asset value (NAV) have widened across the investment trust universe. As at the end of March 2024, the trust was trading on a discount to NAV of 12.1%. This compares to a discount at the same time the previous year of 9.3%. To put this in context, the average discount over the last 10 years was 3.29%.

The board of the trust has a policy of buying back shares if the trust’s share price discount to NAV exceeds 6% on an ongoing basis. Over the year to 31 March 2024 the trust bought back over 80 million of its own shares at an average discount of 10.5%.