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Tough summer for BB Healthcare, but long-term fundamentals remain unchanged

Snapshot

  • Invests in healthcare stocks around the world
  • Mainly invests in small- and mid-caps
  • Tough summer but history of outperformance
  • 4.85p divi targeted for 2019
BB Healthcare Trust PLC -

Quick facts: BB Healthcare Trust PLC

Price: 124.802 GBX

LSE:BBH
Market: LSE
Market Cap: £539.74 m
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One thing we can all agree on is the air up here at market highs is thin and that makes people twitchy. Compound this febrile environment with someone who thinks Twitter is a policy tool and macro volatility becomes the new normal.

Paul Major and Brett Darke, investment advisers

 

What it does

BB Healthcare Trust PLC (LON:BBH) is a healthcare trust focused on global healthcare equities. It is run by the management team behind the successful BB Biotech Investment Trust.

The fund invests in a maximum of 35 companies at any one time, and there are no restrictions on geographies, market cap or sub-sector.

Currently, around 20% of the fund is made up of mega caps – the household names such as Bristol-Myers Squibb Co (NYSE:BMY) that are worth upwards of US$50bn.

Another 28% or so is big caps (over US$10bn), while small and mid-caps (sub-US$10bn) account for just over half of the investments.

Although there are no restrictions on geography, the bulk of BB’s investments are in the US, which is perhaps unsurprising given that the US is home to the world’s biggest pharma market (by quite some way!).

Top ten holdings as of 31 July:

Teladoc (10.1%)

Anthem (10.0%)

Align Technology (8.0%)

Illumina (7.5%)

Humana (7.1%)

Bristol Myers Squibb (5.3%)

Lonza (5.0%)

Intuitive Surgical (3.4%)

Hill-Rom Holdings (3.0%)

Esperion (2.9%)

How it is doing

In the six months ended 31 May – the first half of BB Healthcare’s financial year – the company enjoyed another period of relative outperformance, meaning it outperformed the benchmark index over the same period.

BB’s net asset value (NAV) fell by 3.2% over the period, although that was still noticeably better than the MSCI World Healthcare Index which delivered a negative total return of -4.5%.

As well as the volatility brought about by ongoing trade tensions and political and economic uncertainty, the healthcare sector has also suffered from fears that the 2020 Presidential candidates might look to use drug pricing as one of their campaign tools.

As a result, healthcare underperformed the wider market in the first half, by a “significant margin” of 6.9%.

More recently, bosses described this summer as “our most painful period” in terms of performance.

Although the MSCI World Healthcare Index is up 2.7% (in sterling terms) over summer, BB Healthcare’s NAV dropped by 1.4%.

“This lamentable performance was due primarily to two stocks; Illumina and Align, where the market has chosen to forsake longer-term indicators of health in favour of tangible, but shorter-term concerns,” said the company in a recent update.

Other factors also weighed on BB’s investments. As macro concerns persist, those traders who are still investing the healthcare sphere are moving their money into the bigger, ‘safer’ stocks, rather than the small and mid-caps that BB is largely invested in.

Blue sky

While things may be tough for healthcare investors right now, BB is adamant that the long-term fundamentals of its companies are still attractive.

“In such volatile times, we must abstract ourselves from the noise and ask more searching questions about whether or not the medium-to-longer term fundamental outlook for the company’s holdings has changed,” said BB’s board back in July.

“In this regard, we remain resolutely of the view that the evolution has been resolutely positive.”

One of the fund’s managers, Paul Major, echoed those thoughts in an interview with Proactive, stating all that has happened over the past couple of months is that BB has given up some of the gains it had built up over the benchmark index.

“We delivered significant outperformance from inception up until the end of May, and what we’ve done is now given a lot of that up. But versus an investment in any of our peers, investors aren’t any worse off.”

In terms of future investments, Major said BB would like to increase its exposure to the smart medical devices and healthcare services markets.

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BB Healthcare's Paul Major upbeat on the trust's long-term fundamentals

BB Healthcare Trust PLC (LON:BBH) is a healthcare trust focused on global healthcare equities.  It is run by the management team behind the successful BB Biotech Investment Trust. Portfolio manager Paul Major says while things may be tough for healthcare investors right now, he's...

on 23/8/19

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