Transcript
Speaker: Welcome to Uncovering Trusts, a podcast by Edison Group. I'm your host, Will Manuel, and today I'm joined by Dr. Aaron Atkar, healthcare analyst at Edison, who talk about Worldwide Healthcare care Trust, whose ticker is WWH.
Speaker: Aaron, thanks for joining us today. Hi there, Will. Great to be here. Great. So, given it's been several months since we last discussed this trust, let's start with a brief introduction.
Speaker: Good idea. So firstly, it's important to understand that Worldwide Health is a very large specialist healthcare care company. With the market cap approaching £1.5 billion, pounds it is by far the largest fund in the seven-strong AIC biotechnology and healthcare care sector.
Speaker: The trust, alongside StableMate, the Biotech Growth Trust, is managed by Orbamed Capital, which is a leading global healthcare investor with around $17 billion dollars of assets under management, of which approximately $4 billion dollars is in public equities.
Speaker: And this operates from three continents with offices in New York, San Francisco, in Israel, Hong Kong, Shanghai, Mumbai, and London. Auburn Med has a team of around 145 people, about a quarter of whom hold advanced medical qualifications.
Speaker: Now, Worldwide Health has two managers, Sven Borho, who is on the trust board, and Trevor Polischuk, who aim to generate a high level of capital growth from a diversified portfolio of global healthcare care stocks.
Speaker: Performance is measured against the MSCI World Healthcare Index. Investment guidelines permit a maximum of 15% of the portfolio in an individual stock and a maximum of 10% in unquoted securities.
Speaker: Trust is subject to a five-year continuation vote, with the next vote due at the 2029 AGM. Okay, so um can you provide a refresher on the stock selection process? Sure.
Speaker: Stocks are selected on a bottom-up basis from a universe of around 1,000 companies. Since 2009, Orbimed has employed a public equity portfolio review process whereby the managers and their relevant colleagues meet regularly to discuss the trust portfolio structure and individual holdings, along with industry events.
Speaker: They focus on companies with underappreciated product pipelines and strong management teams, which are trading on reasonable valuations. Orbiment's large private equity team give the managers good access to unquoted companies.
Speaker: Great. So um what does Worldwide Health bring to the table for investors? Briefly, ah very broad exposure to the global healthcare industry, as the managers can invest around the world, across all industry subsectors, and they employ a multi-cap approach.
Speaker: What should be highlighted is the long-term bias towards biotech stocks, which make up around 30% of the portfolio. The offset is an underweight position in large-cap farmer stocks.
Speaker: but Within biotech, the managers favor emerging, essentially less mature, smaller cap businesses, which, although they are inherently riskier, over time have offered high returns.
Speaker: While this strategy has been detrimental to recent performance, over the long term, it has made a very important contribution to the trust shareholder returns. Right. and um Okay, that that's a good framework. on Now, maybe perhaps we can have some more details about the portfolio.
Speaker: Of course, let's look at how the trust was positioned in mid 2025. In broad terms, there was 26% invested in biotech, which was 12 percentage points above the index weighting, while the 25% in pharma was 16 percentage points below the index allocation.
Speaker: The majority of the balance was held in medical equipment and supplies companies, so 30% versus 22% in the index. Within Biotech, one of the Trust's largest holdings was 9% in a healthcare M&A target swap basket, which was first constructed in April 2022. This is a derivative product constructed and managed by Orbimed, made up of 20 biotech companies that the firm considers to be likely M&A targets.
Speaker: Combined, Worldwide Health's top 10 holdings make up just over 60% the fund. Reflecting its dominance in the global healthcare industry, US stocks make up 74% of the portfolio, which was modestly above the index weighting.
Speaker: Overall, there were 47 holdings, which was a reduction of six names compared with a year earlier. Okay, thanks for that. um So can we touch on Worldwide Health's performance record?
Speaker: Yes, it's important to explain this because recent performance numbers for the trust do not look very encouraging, but over the long term, things look quite different. Since launch in September 1995 until the end of FY25, so to the 31st of March, Worldwide Health generated average annual NAB and share price total returns of plus 13.4% and plus 12.8% respectively, which was meaningfully above the benchmark's plus 11.3% average annual return over the period.
Speaker: Unfortunately, since early 2021, the Trust's relative performance has been negatively affected by its biotech exposure. The biotech sector has suffered its longest and largest absolute and relative drawdown in its history.
Speaker: Smaller cap names have performed particularly poorly in a period of rising interest rates and above average investor risk aversion. Since mid-February 2021, an index of small and mid-cap biotech stocks has roughly halved.
Speaker: This compares to the broad US market, which has risen by around two-thirds, so there's a very large performance divergence. Right, yeah, no, there is. um And so what what are the managers' views about the healthcare care sector, especially given the poor performance?
Speaker: So focusing on the dominant US healthcare care market, healthcare care stocks have underperformed the broad US market since the end of 2022 for a variety of reasons, including regulatory concerns, pricing pressures, and the end of the COVID-led demand.
Speaker: More recently, US President Trump's threat to impose tariffs on pharmaceutical imports has brought additional uncertainty. This year, to the end of July, the MSCI World Healthcare Index was down by 2.3%, while the MSCI World Index was up by nearly 11%.
Speaker: With this as a backdrop, the trust managers maintain their positive outlook for the healthcare sector. Okay, well, that's good. um So it'd particularly interesting now to hear their perspectives, given the current environment.
Speaker: So along with their bullish view on the sector, the managers remain positive on the outlook for emerging biotech companies in particular, based on all-time high levels of innovation. They believe that investing in innovation is the correct strategy for creating long-term value for the trust shareholders.
Speaker: It should be remembered that two-thirds of the drug industry pipeline ah comes from emerging biotech companies. Over the last few quarters, there's been a series of important approvals for biotech drugs, which, if successful, have mega blockbuster potential, which is multi-billion dollar potential.
Speaker: One example is Akeso Biopharma and Summit Therapeutics, Ivanesimab for the treatment of non-small cell lung cancer. Drug approvals at the US FDA remain strong. There was a step up in approvals in the first year of Trump's first presidency.
Speaker: And now we've seen nearly 450 new FDA approvals over the last eight years. Of the eight notable approvals in 2024 highlighted by the managers, all are generating more than a billion dollars in sales.
Speaker: and Right. Okay. That's encouraging. um So we discussed earlier that biotech stocks have underperformed the US market for quite a protracted period. um So how do the managers view the potential for performance going forward?
Speaker: The managers expect the performance gap to narrow, with biotech valuations at record lows based on median market cap versus net cash on balance sheets. They believe that an uptick in M&A will be the catalyst for better biotech performance.
Speaker: There is a looming patent cliff affecting around $250 billion dollars in branded sales, so pharma companies are making acquisitions to fill their product pipelines. Medicare drug price negotiations are due to start in 2026, and there is increased urgency to acquire ahead of this.
Speaker: Around 30% of the biotech industry is trading at market caps below the levels of cash on their balance sheets. Worldwide Health's swap basket has held some companies that have been acquired at considerable premiums.
Speaker: This strategy brings added exposure to potential M&A targets without having to meaningfully increase the number of names in the portfolio. The managers acknowledge that the political environment under Trump is not straightforward, but think that, on balance, the positives outweigh the uncertainties.
Speaker: Positive points include potential changes to drug price reform, extended patents for small molecule drugs, more M&A under the new head of the Federal Trade Commission, and an environment that is pro-innovation with less regulation.
Speaker: Uncertainties include a vaccine skeptic as head of the U.S. Department of Health and Human Services, government spending cuts, and the introduction of pharmaceutical tariffs. Okay, thanks for that. A lot going on. So we're we're close to the end of our session. And just to finish off, is there anything else that we haven't covered yet?
Speaker: It's probably worth highlighting that although dividends are paid out semi-annually, the trust has a modest yield given its capital growth objective. There are frequent share buybacks as there is a discount control mechanism whereby the board aims to ensure a maximum 6% share price discount to X income NAV in normal market conditions.
Speaker: Gearing up to 20% of NAV is permitted, although the amount of leverage varies as the managers aim to take advantage of periods of stock market volatility. Okay. So thank you for very comprehensive update on the Worldwide Healthcare Trust.
Speaker: It's always a very interesting one to get an update on. um Perhaps now is really an opportune time for a revisit. ah You've been listening to Uncovering Trust, a podcast by the Edison Group.
Speaker: If you want to find out more about WWH and other investment companies that we cover, please visit www.edisongroup.com.
