International Biotechnology Trust (IBT)
Results analysis from Kepler Trust Intelligence
The quoted portfolio, which represents 91.6% of IBT's total investments, rose by 3.8% during the financial year ending 31/08/2023, beating the Nasdaq Biotechnology Index by 5.2%, which fell 1.4% over the same period. Outperformance was due to careful selection of mid cap revenue-generating biotech opportunities, which became acquisition targets. In particular, Horizon and Seagen represented the two largest portfolio holdings before they became the subject of takeover bids. In both cases shareholders benefitted significantly from the performance uplift, and the investment managers subsequently took the decision to reduce the positions to lower exposure to the transaction risks. This has proved prescient as both share prices have been volatile following announcements of investigations into the deals by the Federal Trade Commission (FTC).
The unquoted portfolio, which comprises 8.4% of total investments, is primarily invested in two venture capital funds, SV Fund VI and SV BCOF. SV Fund VI has delivered a currency adjusted Internal Rate of Return (IRR) of 17.7% per annum for investors. SV BCOF has delivered a currency adjusted IRR of 109% since it was launched in January 2022.
The transition of management to Schroders, which is due to occur on 20/11/2023, ensures continuity of the existing mandate combined with the benefit of the significant investment trust expertise which Schroders brings to the table. Ailsa Craig and Marek Poszepczynski are moving to Schroders and will continue to manage the quoted portfolio with the same investment philosophy. Chair Kate Cornish-Bowden said: "We are excited about the opportunities for IBT within the Schroders stable and are looking forward to the future with confidence".
The underperformance of the biotechnology sector globally may pique the interest of contrarian investors, it now having had a third successive year of difficult markets. The team point to demographics and the cyclicality of the biotech sector as long-term supporting factors which mean it may be an interesting time to look at the sector.
That said, Biotech remains a high-risk area of the stock market, arguably best navigated by experts in this complex field. Over the last financial year, International Biotechnology Trust (IBT) has continued to do the job for investors that it has long aimed to do: deliver outperformance of the benchmark, with lower volatility.
IBT remains exposed to the most innovative areas of science. The managers are recycling proceeds from M&A into small and mid-cap opportunities, whose share prices have been hit hard by global risk aversion. Rather than make binary bets on specific companies, the team have identified clusters of smaller companies focussing on the same disease areas but with different technologies or approaches.
We think IBT continues to provide an interesting combination of growth potential and yield, achieved through the board's policy of making dividend payments equivalent to 4% of the Company's 31/08/2023 NAV, through two semi-annual distributions. Despite the distractions of the board negotiating alternative management arrangements, we think it is impressive that Ailsa and Marek have nonetheless outperformed the benchmark by a significant margin during the last financial year.
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