Worldwide Healthcare (WWH ) trust believes the ‘malaise’ that has hung over the biotech sector since the Covid pandemic has finally ‘evaporated’ as investors focus on company fundamentals again. 

Fund managers Sven Borho and Trevor Polischuk noted that global healthcare stocks advanced and the MSCI World Health Care index hit an all-time high in dollar terms over the six months to the end of September.

However, the defensive nature of the sector, coupled with uncertainty around the frequency and magnitude of interest rate cuts, knocked returns, meaning it trailed broader markets.  

The pair were bullish on the outlook for the healthcare industry as it benefits from significant technological advancements and added that the unexpected Republican Sweep in the US presidential election was a positive for the sector.

‘The “Red Sweep” was probably the best-case scenario for healthcare. While the implications may vary by sub-sector, overall the Republican party history – and previous Trump administration – has been industry-friendly,’ Borho and Polischuk said. 

They also noted that accelerating innovation in drug discovery and development –including the use of AI, genetic engineering, personalised medicine, and synthetic biology – was ‘fostering a robust pipeline of new therapies and treatments’. 

The £1.9bn pharmaceutical and biotech investor managed to eke out a small gain against its MSCI World Healthcare benchmark over the half-year period, with a net asset value (NAV) total return of 0.6% and a share price rise of 3.6%, while the benchmark index traded sideways, half-year results show.

That extended three-year NAV returns to 2.9%, while the shares fell 9.8% over the same period, leaving the fund trading at a discount of 11.6%.

The managers said that the past two years have been a ‘simply incredible’ era for productivity, which has already produced approvals for an Alzheimer’s disease treatment, hypertension treatments, and the first-ever cell therapy for melanoma.

The biggest contributor to returns over the period was Tenet Healthcare, a leading US hospital operator and healthcare services provider. Its shares increased nearly 50% in six months after reporting strong operating results and the sale of hospitals at ‘highly favourable multiples’ alongside acquisitions of ambulatory surgery centres.

Long-held Boston Scientific was also a winner thanks to the success of its atrial fibrillation treatment, which is a growing market.

The portfolio of private companies totals 5% of net assets and Borho and Polischuk said they ‘strategically refrained from making new investments’ as they continued to ‘cautiously navigate the challenging public offering market for small and mid-capitalisation healthcare firms’.

They said companies are being selective about pursuing listings but they remain ‘optimistic about the ability of our unquoted investments to achieve listings within the next year as we anticipate further improvement of the capital market funding environment’.

Board under fire

Following last week’s results, the board provided a statement defending its decision to re-elect chair Doug McCutcheon and fund manager Borho, who is a director of the board.

At the annual general meeting in July, more than 20% of votes were cast against the re-election of the pair, given concerns over whether McCutcheon’s 11-year service on the board compromised his independence, and whether Borho could be a director given his role as a manager of the fund. 

In a statement, the board said it ‘shares the widely accepted view that length of service does not in itself impair a director’s ability to act independently. On the contrary, the board believes that long-serving directors’ perspectives can add value to the deliberations of the board,’ it said.

It added that McCutcheon was asked to take over the position of chair in 2022 for a period of ‘three to five years’ to oversee the ‘renewal of the board composition’ and provide an orderly succession, and since then two new independent directors have been appointed in Sian Hansen and William Hemmings, taking the total number of new directors joining to six in the past 14 months.

While the board said Borho is not an independent director, it argued that the fund ‘benefits from his extensive knowledge and experience in investment matters’ and that it routinely took steps ‘to avoid any potential conflicts of interest’. Borho does not sit on any board committees and is not paid a fee for serving as a director.