Earn a 3.5% yield from healthcare

David C Stevenson looks at the best healthcare and biotech investment trusts to tuck away in your portfolio.


Go long on innovative biotechs
(Image credit: vitranc)

Switzerland-based firm Bellevue Asset Management has been running BB Biotech (Zurich: BION), Europe's biggest biotech focused investment trust, for a decade or so, and has a cracking track record. The firm is now aiming to raise £200m for a new London-listed fund, BB Healthcare Trust (BBH), which is scheduled to float in early December.

BB Healthcare will be a broader fund than BB Biotech. It will include biotech, but will also extend to other bits of the healthcare spectrum, including healthcare equipment, as well as mainstream drug businesses. The fund will be high-conviction, with a maximum of 35 stocks. While it has yet to start investing, a model portfolio exists and this looks punchy: it is 81% US-based, low on mega-cap drug majors and long on biotech businesses.

The annual management charge will be 0.95%, which is not cheap, but neither is it hideously expensive and there's no performance fee. BBH will also use an unusual structure, designed to minimise the shares trading at a discount to its net asset value (NAV), called an annual redemption facility.

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The managers say that this will allow investors to exit their investment at approximately NAV, which theoretically means that if the discount was wide, all investors could redeem and the fund would close. That's obviously not the hope of the fund's managers, but it shows that they're serious about keeping that discount under control.That's helpful because BBH's two nearest competitors, Polar Capital Global Healthcare (LSE: PCGH) and Worldwide Healthcare Trust (LSE: WWH) are trading on small discounts to NAV.

How does BBH compare with those peers? PCGH and WWH also invest across the global healthcare spectrum, but they have larger portfolios (between 70 and 80 stocks) and are less heavily invested in the US. BBH will also pay a sizeable dividend of 3.5% per annum (presumably funded out of capital early on), compared with 1.9% for Polar and 0.8% for WWH.

Overall, I'm a big fan of any investment strategy that looks to capitalise on our ageing society, and I like the idea of being able to invest across the healthcare spectrum and pick up an annual dividend income as well. So while the Polar and Worldwide funds tick the same boxes, this new fund looks like it might boost returns with more focused stockpicking energy.

David C. Stevenson

David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire.
He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com

David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space. 

Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business. 

David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust. 

In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.