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19. Uncovering Trusts – Worldwide Healthcare Trust (WWH)
51 Plays28 days ago
In this episode, our director of content, investment trusts Milosz Papst explores the Worldwide Healthcare Trust (WWH), a specialist investment trust that invests in the global healthcare sector, with the objective of achieving a high level of capital growth. He discusses the broader investment backdrop for the healthcare and biotech sector. He also elaborates on WWH’s stock selection process, its longstanding overweight exposure to biotech and an underweight allocation to pharma stocks. Finally, he talks about WWH’s discount control mechanism, long-term performance, and dividend policy.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Podcast Introduction
00:00:05
Speaker
Welcome to Uncovering Trusts, a podcast by the Edison Group, a content-led IR business integrating analyst content, digital targeting, and investor engagement. Each episode will uncover the distinct features and latest developments of this selected listed investment company. So tune in to find interesting investment ideas and stay on top of what's happening in the investment company sector.
Guest Introduction: Milos Pabst
00:00:28
Speaker
I'm your host, Will Manuel, and today I'm joined by Milos Pabst, Director of Investment Company Content at the Edison Group. We'll talk about Worldwide Healthcare care Trust, ticker as WWH. So Milos, thanks for joining us today. Hi Will, great to be here.
Healthcare and Biotech Investment Focus
00:00:44
Speaker
Great, so I believe that this podcast episode is part of a broader thematic campaign on investment companies focusing on the healthcare and biotech sector. Can you tell our listeners a bit more about that? With pleasure, um our healthcare and investment companies analysts decided to join forces to extensively cover the space.
00:01:01
Speaker
As we feel that, following the derating of the sector after 2021, the combination of continued high level of innovation across a wide range of therapeutic areas, ah the need need of big pharma companies um to fill their pipelines ahead of a major patent cliff, and the onset of interest rate cuts in the US, ah create an interesting environment for investors seeking exposure to the theme.
00:01:23
Speaker
We also feel that a comprehensive review of the opportunity set of listed closed-end investment funds focused on the sector may prove useful for investors. Therefore, we will soon publish a thematic report to cover this.
Thematic Reports and AI in Healthcare Investments
00:01:36
Speaker
In the meantime, we published a series of interviews with fund managers of some of these investment companies to hear their thoughts about attractive therapeutic areas,
00:01:44
Speaker
an AI outlook in the sector, the impact of the US Inflation Reduction Act, as well as the use of big data and AI to enhance the investment process and provide novel insights into developments in the sector. I strongly encourage our listeners towards these interviews and stay tuned for the thematic research note.
Overview of WWH Fund
00:02:02
Speaker
Great. So that's a great backdrop. So let us now move on to an introduction to WWH.
00:02:08
Speaker
Of course, Worldwide Healthcare Trust, along with its stable-mates, the biotech growth trusts, is managed by global healthcare specialist Aubiumet Capital, which has more than 17 billion dollars of assets under management. The company operates from three continents, with offices in New York, San Francisco, London, Herzliya, in Israel, Hong Kong, Shanghai, and Mumbai.
00:02:30
Speaker
It has a team of around 140 people, ah who more than 35 hold PhD or MD qualifications, and around 15 are former CEOs or company founders. ah The trust managers, Sven Boho and Trevor Poliszczak, aim to generate a high level of capital growth from a diversified portfolio of global healthcare care stocks. so They can invest in every industry sub-sector in any geography and across the market cap spectrum. um The portfolio split broadly 80-20 between large and small slash mid cap stocks. The trust performance is measured against the MSCI World Healthcare care Index, Stellinger dust adjusted.
00:03:10
Speaker
Right, so given the broad healthcare care remit, how are stocks selected?
WWH's Stock Selection Process
00:03:15
Speaker
Okay, um stocks are selected on a bottom-up basis. Orbehmet has employed a public equity portfolio review process since 2009 whereby Boho and Poliszczak meet regularly to discuss the trust portfolio structure and individual holdings. Topics include clinical and regulatory events and new drug launches.
00:03:34
Speaker
um Stocks are selected from a universe of around 1,000 companies, with the managers seeking companies with under-appreciated product pipelines and strong management teams, which are trading on reasonable valuations. Boho and Polistrac also have good access to unquoted companies, given Obimet's large private equity team. um So a maximum 10% of the fund may be held in unlisted businesses.
00:03:59
Speaker
There is a disciplined portfolio construction approach and a rigorous risk management process. Great, so now may be a good time to drill down a bit and find out more about WWH's portfolio. Yeah, so the most important thing to understand is the trust portfolio bias. There is a long-standing overweight exposure to biotech and an underweight allocation to pharma stocks.
00:04:20
Speaker
Within biotech, the managers favor emerging, um which are smaller cap rather than larger cap businesses, as although these companies are inherently riskier, their risk reward profiles are deemed to be superior. Over the long term, this strategy has been significantly beneficial for the trust's performance. ah Pharma and biotech make up around 50% of the fund with the balance in healthcare equipment and supplies, healthcare providers and services, and life science tools and services.
00:04:49
Speaker
um Also, one of the trust's largest positions is the Helter M and&A Targets WAP basket, which was first constructed in April 2022. It is a derivative product, constructed and managed by Olby Metz, made up of 20 biotech companies that the firm considers to be the most likely M&A targets.
00:05:08
Speaker
ah The strategy has successfully identified some companies that have been acquired at considerable premiums, ah bringing added exposure to potential M&A targets without having to meaningfully increase the number of names in the portfolio. ah US companies make up the bulk, around 70% of the trust portfolio, but but this is unsurprising given this country's dominance in the global healthcare care sector. um The portfolio has around 60 holdings, with the top 10 names making up around half of the fund.
00:05:36
Speaker
And I'm sure our listeners will be keen to find out, how do the managers view current prospects for healthcare stocks?
Future of Healthcare Stocks: Innovation and Demographics
00:05:43
Speaker
Yeah, so Borja and Poliszczyk consider the outlook for the global healthcare industry is very favorable and is supported by powerful themes. ah These include increasing demand for healthcare products and services from an aging global population and very importantly, elevated levels of innovation within the healthcare sector.
00:06:01
Speaker
In terms of therapeutic categories, the managers highlight oncology, as developments are expected in a range of therapies, including immunoncology, where products stimulate the body's immune system, antibody drug conjugates, which target and kill tumor cells while sparing healthy cells, and the bispecifics, which are two antibodies in one molecule.
00:06:25
Speaker
The managers believe that the use of diabetes products for the treatment of obesity is just beginning and peak sales for this category could reach $200 billion dollars by 2030. Denmark listed Novo Nordisk and US listed Lillily currently lead this market, but global product laws are small and calculated as there are capacity constraints which are restricting product supply.
00:06:46
Speaker
ah Both Nova and Lily are in the trust portfolio and look well positioned to benefit from the development of next generation injectable and oral alternative obesity treatment products. I think it is worth noting that last year was a record year for new drug approvals by the US s Food and Drug Administration, with a total of 67, including chemical drugs plus biological products, compared with 45 in 2022. The managers note that nearly 400 drugs have been approved in the last seven years, while the pace of new product approvals has remained brisk in 2024.
00:07:22
Speaker
It is important to bear in mind that the biotech sector is recovering from the longest and the largest absolute and relative drawdown in its history as growth stocks came under pressure in the rising interest rate environment. Now, biotech IPOs have resumed and are trading at premiums to their IPO prices while access to funding has improved.
00:07:41
Speaker
M&I active in the health sector is buoyant for a range of reasons. um There is a looming patent cliff with OrbiMed suggesting that $250 billion dollars of branded drug sales are at risk from 2025 to 2030. Some of the major pharma companies are also facing pressure from drug price reform.
00:08:01
Speaker
biotech valuations based on the ratio of market cap to net cash on the balance sheet are currently at record lows, while biotech innovation is at an all-time high. And importantly, 65% of the US drug industry pipeline is from small cap biotech companies. Right. and he So some compelling reasons to be positive there. And um does the upcoming presidential election threaten to derail the performance of the the sector, the healthcare care sector?
Healthcare Sector Resilience and Election Uncertainty
00:08:31
Speaker
Well, actually the trust managers are relatively relaxed about the November 2024 election. um They believe that there is a high likelihood that the status quo will be maintained in terms of a split Congress and no controversial legislation. um Also the conclusion of the election is likely to remove an element of an uncertainty, which may prove beneficial for the performance of healthcare stocks. so Right. um So before we wrap up, are there any other aspects of the WWH story that investors need to be aware of?
00:08:59
Speaker
Yes, there are a couple of aspects. and The trust managers do not have a particular yield requirement, as the board believes that the trust capital should be deployed in the portfolio rather than paid out as dividends. Semi-annual distributions are made in January and July, though the trust dividend yield is less than 1%.
00:09:17
Speaker
um An important feature of the trust is the discount control mechanism implemented by the board in 2004, aiming to ensure a maximum 6% share price discount to X income and AV in normal markets market conditions. and The trust employs gearing up to 20% of an AV is permitted. so um and Historically, the trust maintained a relatively high level of gearing, but over the last few years, the managers have employed a more pragmatic and tactical approach, ah hoping to take advantage of periods of stock market volatility.
00:09:46
Speaker
ah The trust has not been immune to the general trend of wider than historical average discounts. um There's scope for the company to be afforded a higher valuation, particularly as its relative performance is improving following a temporary setback.
Conclusion and Further Resources
00:10:00
Speaker
Here, I would note that since the trust was launched in April 1995, it has outperform its benchmark by a considerable margin, and between early 2017 and the end of 2021, regularly traded close to NAB.
00:10:15
Speaker
Right, that's great. So thanks for the rundown on this exciting trust. it' so It's invested very well since launch. ah So you've been listening to Uncovering Trusts, a podcast by the Edison Group. If you want to find out more about WWH and other investment companies that we cover, please visit www.edisongroup dot.com.