Ian Cowie: how I am playing the weight-loss drugs craze

Health secretary, Wes Streeting, claims weight-loss drugs could save the NHS millions but biotechnology and healthcare investment trusts can help shareholders put on pounds - as I know from personal experience.

When I first invested in the Ozempic and Wegovy wonder drugs-maker, Novo Nordisk (NYSE:NVO), nearly four years ago, several readers expressed incredulity about these semaglutide injections. Now even Streeting is shouting from the rooftops about how they can help to tackle obesity.

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Sad to say, I know nothing about the relative merits of Ozempic and Wegovy, or Mounjaro and Tirzepatide, a rival weight-loss jab made by the biggest pharmaceutical firm in the world, Eli Lilly (NYSE:LLY).

Fortunately, one of my longest-held investment trusts, Worldwide Healthcare (LSE:WWH), means I don't need to understand the science; the fund managers Sven Borho and Trevor Polischuk can look after that for me.

Better still for those who would like to help fund medical research - and, perhaps, share in the wealth created when they find a drug that works - funds in the Association of Investment Companies (AIC) ‘Biotechnology and Healthcare’ sector are still going cheap. These shares remain priced an average of 15% below their net asset value (NAV).

One reason is that discovering efficacious pharmaceuticals that do not have dangerous side-effects is not easy; fewer than one in 10 drugs that begin trials make it to market. Another, more topical, reason is that the American presidential candidates, Kamala Harris and Donald Trump, are both in rare agreement that they want to squeeze ‘Big Pharma’ to cut prices.

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That may explain why this investment trust sector has produced relatively sickly returns over the past year and five years - averaging 13% and 8.7% respectively - following 117% over the last decade. To put those numbers in perspective, investment trusts of all types delivered 22%, 49% and 178% over the same periods.

Nor do the pill-pushers give investors much of a lift in the way of dividend income to pay us to be patient. Biotech and healthcare investment trusts typically yield 1.6% that has risen by 2.7% over the last five years, compared to all types of investment trusts' averages of 3.5% rising by 6.25%.

Even so, investors who would like our money to make a difference for the better should consider this sector. From an ethical point of view, it beats backing the tobacco racket – with such firms held by tracker funds - and can also yield financial rewards.

For example, I have been a WWH shareholder for more than a decade and transferred these shares from a paper-based broker in March 2014, when they were trading at £1.35, allowing for a subsequent ten-for-one stock split in July last year. They cost £3.45 today.

It is only fair to add that most biotech and healthcare investment trusts have done better than that over the short term. According to independent statisticians Morningstar, WWH ranks sixth out of seven over the last year; fourth over five years and third over the decade.

Despite this disturbing diagnosis, I intend to keep taking the WWH pills because I like the look of a £2.2 billion portfolio that is led by LLY with NOVO not far behind and also includes Intuitive Surgical, which makes robots that can conduct medical operations. Overseen remotely by a trained surgeon, the opportunities to treat more people at less cost are potentially very significant. My optimism may be shared by others because WWH trades on a discount of -12%, which is a fifth smaller discount than the sector average.

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Followers of form may prefer RTW Biotech Opportunities (LSE:RTW), which leads this sector over the last year with a total return of 37% but lacks longer numbers after being launched in October 2019. It continues to trade at a -23% discount.

Polar Capital Global Healthcare (LSE:PCGH) leads over five years with a return of 82%. Over the past decade it is up 188%, while it has gained and 20% over the last year. It is trading on a modest -7% discount.

International Biotechnology (LSE:IBT) beat the rest over the last decade with 203%, 44% over five years and 20% over the last year. It trades at a -9.7% discount to NAV and, most unusually for this sector, delivers 4% dividend income, albeit rising almost imperceptibly over five years annualised by 0.28%.

It remains to be seen whether ‘Wegovy Wes’ is right about how to tackle the enormous problem of obesity. But investing in healthcare means you can can 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.