Ian Cowie: healthy long-term gains, but short-term pains

There are many uncertainties facing investors, from artificial intelligence (AI) in California to war in Ukraine, but one thing for certain is that people will continue to get ill and be willing to pay to get better.

That is the fundamental attraction behind one of my longest-held investment trusts, a global giant which celebrated its 30th anniversary this week. As one of its top 10 underlying holdings is a maker of AI surgical robots, which enable medical operations to be conducted remotely, it was ironic to hold its birthday bash at the Royal College of Surgeons. It seemed a bit like celebrating iPads at a book fair.

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But Worldwide Healthcare Ord (LSE:WWH) is a mix of backing new and old ways of meeting the eternal problems of human frailty and illness. In addition to the robot-maker, Intuitive Surgical Inc (NASDAQ:ISRG), this fund’s top 10 holdings are led by Eli Lilly and Co (NYSE:LLY), the world’s most valuable pharmaceutical company - probably best-known now for the diabetes and weight-loss wonder drugs Mounjaro and Zepbound.

Not far behind that 9.4% holding, ranking fourth by size, is Novo Nordisk AS ADR (NYSE:NVO), the world’s biggest maker of insulin and the diabetes and weight-loss drugs Ozempic and Wegovy. Other familiar names among top assets include AstraZeneca (LSE:AZN), Britain’s most valuable business and a leader in oncology or cancer treatment, plus the cardiac pacemaker company Boston Scientific Corp (NYSE:BSX).

It all added up to a prescription for long-term capital growth after WWH raised £16 million at launch in 1995, when it was known as Finsbury Worldwide Pharmaceutical Trust, before bursting through the £1 billion mark in 2016 and peaking at £2.5 billion in 2021. Its total asset of £1.9 billion today trade at a -12% discount to their net asset value (NAV).

Coming down from the clouds of macro-statistics, this small investor transferred my WWH holding online from a paper-based broker in March 2014, at the equivalent of 135p per share, allowing for a subsequent 10-for-one stock split. They trade at 320p now.

Those numbers aren’t bad but they aren’t brilliant, either. The case for and against WWH could be summed up as good long-term performance, followed by mediocre to poor medium- and short-term returns.

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For example, over the past decade, five years and one-year periods, WWH’s total returns were 93%, 10% and -0.1%; placing it third, fourth and fifth, respectively, in its sector of seven funds. There is also a negligible dividend yield of 0.9%, rising by an annual average of 1.1% over the past five years, according to independent statisticians Morningstar.

For comparison, the Association of Investment Companies (AIC) “Biotechnology and Healthcare” sector is led over the past decade and five-year periods by Polar Capital Global Healthcare Ord (LSE:PCGH) with returns over the usual three terms of 140%, 68% and minus 2.8%. PCGH yields 0.6%, rising by 2.3% per annum and is priced -4.9% below its NAV.

The one-year sector leader is International Biotechnology Ord (LSE:IBT) with returns over the same three periods of 93%, 42% and 3.5%. IBT is unusual in offering a decent dividend yield of 4.3%, albeit rising very slowly at 0.3% per annum, and the shares are priced -9.3% below NAV.

All the above funds give non-medical folk like me exposure to scientific developments about which we may know next to nothing. Unfortunately, they also all suffer from the fact that only about 10% of the new drugs that begin medical trials ever make it to market.

More recently, the whole sector has suffered political headwinds in the form of populists bashing Big Pharma and threatening to squeeze drug prices lower. Perhaps the most high-profile and important example is the American president, Donald Trump, appointing the vaccine sceptic Robert F. Kennedy Jr as US health secretary.

Trump, who famously mused about the potential benefits of household bleach in the fight against Covid, had previously called his new colleague “the dumbest” Kennedy. However, the latter may be learning, as measles caused the death of one unvaccinated six-year-old child in Texas, prompting Kennedy to change his view of the outbreak this week from “not unusual” to “serious”.

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More positively, WWH joint fund managers, Sven Borho and Trevor Polischuk, who have been at the helm since 2013 and 2015 respectively, predict a series of imminent healthcare innovations. These include new drugs to treat, cure and even prevent diseases of the central nervous system, such as Alzheimer’s; transforming more cancers’ status from acute to chronic or survivable illnesses; organ replacement and augmentation; plus more primary or diagnostic care being delivered by AI robots, rather than human doctors.

Here and now, it is encouraging for shareholders to see that all seven of WWH’s directors hold more stock in this trust by value than we pay them each year to sit on its board. That doesn’t guarantee healthy returns, but it does suggest those who should know believe this trust will continue to offer investors a way to do well by doing good.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Eli Lilly (LLY), Novo-Nordisk (NOVO) and Worldwide Healthcare (WWH) as part of a globally diversified portfolio of investment trusts and other shares.