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BB Healthcare Trust PLC: THE INVESTMENT CASE
Chairman, Professor Justin Stebbing, said he hoped 2018 would be driven more by stock fundamentals
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INVESTMENT OVERVIEW: BBH The Big Picture
In the period from October 7, 2016 to November 30, 2017 BB's managers generated a total return (share price growth plus dividends) of 20.5%

BB Healthcare Trust PLC (LON:BBH) comfortably outperformed its benchmark during what it described as a volatile year for the sector.

Chairman, Professor Justin Stebbing, said he hoped 2018 would be driven more by stock fundamentals than the politics now that wrangling in the US over the Affordable Care Act had ceased. 

READ: BB Healthcare Trust delivers as it comfortably beats its benchmark

He believes the Republicans have “largely exhausted” their opportunities to reform Obamacare; at the same time “the realities of drug price trends are better understood”.

“I am optimistic about the future; we see innovations in every area of healthcare practice that offer the genuine potential to revolutionise the delivery of care and, in so doing, relieve the financial pressures that ail the system,” said Stebbing.

“With its unconstrained approach, the company is well placed to benefit from the financial rewards that will accrue to those companies leading these innovations.”

Ronseal - it does what it says on the tin

The trust, as the name suggests, was set up to invest in the healthcare sector – both here in the UK and abroad.

It is run by the management team behind the hugely successful BB Biotech Investment Trust, which has delivered a compound return of 15% annually since its inception 23 years ago. But it has a more expansive remit than its bigger brother.

The fund has a cap of 35 companies in which it can invest at any one time and while it takes stakes in specific businesses, it does so to garner exposure to investment themes that are rigorously assessed to drive innovation and value.

In the period from October 7, 2016 to November 30, 2017, its managers generated a total return (share price growth plus dividends) of 20.5%. This comfortably beat the firm’s benchmark, which delivered a 6.9% return. The net asset value (NAV) was 115.4p.

While there is a 35-company cap, trading activity means BB has held shares in 40 different healthcare businesses in the last year.

The best performing stock was Align Technology, while the worst was Teva (see table below). A total of 26 delivered a positive return.

It eschews the big conglomerates such as AstraZeneca, GlaxoSmithKline and Pfizer because of their growth prospects and lack of focus, concentrating on the innovative, fleeter footed small- and mid-caps.

While the multinationals are largely off the menu, the one thing the smaller firms don’t traditionally provide is a steady dividend.

BBH corrects that by making a payout from the company’s net asset value. For the year just gone, investors will receive 3.5p a share.

READ: The results in full 

The divi marks it out in the sector as does a mechanism called a redemption option under which BBH can efficiently return capital to investors if they desire it.

There are a number of advantages to operating this system. It means small investors aren’t at the mercy of the market-makers and their often bafflingly wide spreads.

The redemption option also works well for the big, institutional investors, offering the chance to get into the stock in scale and exit without being murdered.

In other words, it promotes liquidity. And while BBH isn’t the first to offer this entry and exit, it is a trendsetter in the world of healthcare.

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February 14 2018
Chairman, Professor Justin Stebbing, said he hoped 2018 would be driven more by stock fundamentals

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