Worldwide Healthcare Trust Managers Remain Optimistic on Sector’S Prospects Investment Trusts Global Healthcare Equities
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Worldwide Healthcare Trust Managers remain optimistic on sector’s prospects Investment trusts Global healthcare equities 7 January 2020 Worldwide Healthcare Trust (WWH) is managed by Sven Borho and Trevor Polischuk at OrbiMed. They remain very constructive on the prospects for Price 3,110.0p the global healthcare sector – despite headline risk ahead of the 2020 US Market cap £1,657m presidential election – citing industry innovation, which they suggest is at AUM £1,729m ‘unparalleled’ levels, and has historically been an important driver of the sector’s performance. Although investor concerns about drug pricing in NAV* 3,090.8p Premium to NAV 0.6% the US remain, Borho and Polischuk say that pharma and biotech NAV** 3,098.9p companies are ‘still getting paid and are generating attractive returns’. In Premium to NAV 0.4% addition to opportunities in developed markets, they are also finding *Excluding income. **Including income. As at 3 January 2020. interesting investment ideas in China, due to higher product approval Yield 0.9% standards and a relaxation of listing requirements for fledgling companies. Ordinary shares in issue 53.3m Code WWH WWH’s NAV is well ahead of the benchmark over the long term Primary exchange LSE AIC sector Biotechnology & healthcare 140 Benchmark MSCI World Health Care 135 130 Share price/discount performance 125 3,400 6 120 Premium/discount (%Premium/discount ) 115 3,200 4 110 3,000 2 105 2,800 0 2,600 -2 100 Share price 95 2,400 -4 2,200 -6 Dec-09 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-10 Dec-11 Dec-12 Dec-13 Jul-19 Apr-19 Oct-19 Jun-19 Jan-19 Feb-19 Mar-19 Dec-18 Nov-19 Dec-19 Aug-19 Sep-19 May-19 Source: Refinitiv, Edison Investment Research WWH Equity Discount Three-year performance vs index The market opportunity 160 150 In aggregate, healthcare shares have generated above-average total returns over 140 130 the long term. Industry fundamentals remain very favourable, helped by secular 120 110 demand growth, high levels of innovation and a supportive regulatory environment. 100 In addition, the sector’s valuation is undemanding, offering longer-term investors 90 Jun-19 Jun-17 Jun-18 Mar-17 Mar-18 Mar-19 Sep-18 Sep-17 Dec-17 Dec-18 Sep-19 Dec-19 favourable prospects in terms of both growth and value. Dec-16 WWH Equity Benchmark Why consider investing in WWH? 52-week high/low 3,255.0p 2,495.0p NAV** high/low 3,186.9p 2,480.8p ◼ The trust offers liquid exposure to the global healthcare sector. **Including income. ◼ Investment in multiple subsectors across the market cap spectrum. Gearing ◼ Experienced managers, able to draw on the broad experience of OrbiMed’s Gross* 9.3% well-resourced, specialist investment team. Net* 6.4% ◼ NAV and share price total returns approaching 20% pa over the last 10 years, *As at 30 November 2019. and long-term outperformance versus the benchmark. Analysts Mel Jenner +44 (0)20 3077 5720 Trading close to NAV Sarah Godfrey +44 (0)20 3681 2519 WWH’s shares regularly trade close to NAV (the board targets a maximum discount [email protected] of 6%). The trust’s current 0.4% premium to cum-income NAV compares with an Edison profile page average premium of 0.1% over the last three years, and average discounts of 0.1%, 2.0% and 4.3% over the last one, five and 10 years respectively. While WWH Worldwide Healthcare Trust is a is managed for capital growth, it also pays regular six-monthly dividends, and research client of Edison Investment currently yields 0.9%. Research Limited Exhibit 1: Trust at a glance Investment objective and fund background Recent developments Worldwide Healthcare Trust’s investment objective is to invest worldwide in ◼ 20 November 2019: Six-month results to 30 September 2019. NAV TR -2.7% pharmaceutical, biotechnology and related securities in the healthcare sector to versus benchmark TR +6.0%, share price TR -2.7%. achieve a high level of capital growth. Gearing and derivative transactions are ◼ 14 November 2019: Announcement of first interim dividend of 6.5p per share used to mitigate risk and enhance capital returns. (unchanged year-on-year). ◼ 16 August 2019: Announcement of the appointment of Dr Bandhana (Bina) Rawal as an independent non-executive director, with effect from 1 November 2019. Forthcoming Capital structure Fund details AGM July 2020 Ongoing charges 0.9% Group Frostrow Capital LLP (AIFM) Final results June 2020 Net gearing 6.4% Manager OrbiMed Advisors LLC Year end 31 March Annual mgmt fee See page 8 Address 25 Southampton Buildings, London, Dividend paid January, July Performance fee See page 8 WC2A 1AL, UK Launch date April 1995 Trust life Indefinite Phone +44 (0)20 3008 4910 Continuation vote Five-yearly, next in 2024 Loan facilities Up to 20% of net assets Website www.worldwidewh.com Dividend policy and history (financial years) Share buyback policy and history (financial years) In line with the requirement for investment trusts to pay out 85% of their income The trust has authority to purchase up to 14.99% and allot up to 10% of issued net of expenses, two interim dividends a year are paid in January and July. share capital. 30 90 25 80 70 20 60 15 50 26.5 40 DPS (p) DPS 10 22.5 17.5 30 15.0 16.5 5 12.5 Costs/proceeds(£m) 20 10 0 0 FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Full year dividend payment Repurchases Allotments Shareholder base (as at 30 November 2019) Portfolio exposure by geography (as at 30 November 2019) Rathbones (10.6%) North America (64.9%) Investec Wealth & Inv. (7.9%) Interactive Investor (5.6%) Hargreaves Lansdown (5.0%) Emerging markets (14.1%) Charles Stanley (4.8%) Quilter Cheviot IM (3.6%) Europe (10.8%) Forsyth Barr (3.5%) Brewin Dolphin (3.3%) Developed Asia (10.2%) Other (55.7%) Top 10 holdings (as at 30 November 2019) Portfolio weight % Company Region Sector 30 November 2019 30 November 2018* Takeda Pharmaceutical Developed Asia Pharmaceuticals 8.5 N/A Boston Scientific North America Healthcare equipment 4.9 4.9 Merck & Co North America Pharmaceuticals 4.5 4.9 Alexion Pharmaceuticals North America Pharmaceuticals 4.1 4.6 Novartis Europe Pharmaceuticals 4.0 N/A Humana North America Healthcare services 3.1 N/A Vertex Pharmaceuticals North America Biotechnology 2.9 3.2 Edwards Lifesciences North America Healthcare equipment 2.7 N/A Mirati Therapeutics North America Biotechnology 2.7 N/A Intuitive Surgical North America Healthcare equipment 2.5 N/A Top 10 (% of holdings) 39.9 40.5 Source: Worldwide Healthcare Trust, Edison Investment Research, Morningstar. Note: *N/A where not in end-November 2018 top 10. Worldwide Healthcare Trust | 7 January 2020 2 Market outlook: Positive industry fundamentals As shown in Exhibit 2 (LHS), over the long term, despite periods of volatility, healthcare investors have enjoyed above-average total returns. While rhetoric ahead of the November 2020 US presidential election may cause some short-term pullbacks in the sector, industry fundamentals remain very favourable, which is supportive for the long-term performance of healthcare stocks. Secular demand remains robust, with a growing number of patients (helped by an ageing global population and rising incomes in developing countries); innovation in areas including gene therapy, immunotherapy and robotic surgery; a favourable regulatory environment (with a high number of drug approvals); and increased healthcare spending as a percentage of global GDP. Historically, mergers and acquisitions (M&A) have been an important driver of healthcare performance; it is encouraging to note the robust levels of deal activity last year, which could continue into 2020. Exhibit 2 (RHS) shows the valuation of global pharma stocks, which are by far the most dominant subsector of the healthcare industry. The Datastream World Pharma index is trading on a forward P/E multiple of 16.0x, which is broadly in line with its five-year average. Pharma stocks are trading in line with the world market, which compares with a 6.1% average premium over the last five years. Taken together, the backdrop of favourable industry fundamentals, robust levels of M&A and undemanding valuations suggest that investors with a longer-term view may benefit from exposure to the healthcare sector. Exhibit 2: Market performance and valuation MSCI World Health Care and MSCI World indices total returns (£) Absolute and relative forward P/E multiple for DS World Pharma index 450 20 25% 400 19 20% Premium/(discount) 350 18 15% 300 17 10% 250 16 5% 200 150 15 0% Forw(x) P/E ard 100 14 -5% 50 13 -10% Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 MSCI World Health Care MSCI World DS World Pharma P/E premium/(discount) to World index Source: Refinitiv, Edison Investment Research. Note: Valuation data as at 6 January 2020. Fund profile: Global healthcare exposure WWH was launched in 1995 and is traded on the Main Market of the London Stock Exchange. It is managed by OrbiMed, one of the largest global specialist healthcare investors, with c $13bn of assets under management (c $5bn in public equities). The firm has six regional offices and a team of more than 80 investment professionals, of whom 25 hold PhD or MD qualifications and 15 are former CEOs or company founders.