International Biotechnology Trust (IBT) aims to harness the strong capital growth achievable from the biotechnology sector to deliver to shareholders both capital growth and a consistent dividend income.
The co-lead managers are now Ailsa Craig and Marek Poszepczynski, who have taken over from Carl Harald Janson who remains a senior adviser to the trust. Having worked closely for a number of years, Ailsa and Marek have overlapping competencies, and represent an evolution rather than a step change to management.
The team invest in both public (listed) and private (unlisted) companies to achieve this, bringing several advantages that we discuss in Portfolio, and this means that IBT offers a unique exposure when compared to peers. Additionally, the team employ a valuation aware approach (‘growth at a reasonable price’), but also aim to deliver lower volatility than peers by de-risking exposures ahead of ‘binary-events’.
Their differentiated approach aims to deliver returns ahead of the index, with lower volatility. As we discuss in Performance, over five years they have achieved this aim. The investment process means that the portfolio is currently less exposed to ‘frothy’ areas of the market. Instead, many of the holdings are trading at significantly lower P/E multiples than the wider market.
As we discuss in more detail in Dividend, IBT pays a formulaic dividend from capital set at 4% of the NAV on the last day of the preceding financial year (31 August). This is equivalent to a prospective yield of 3.9% at current prices. With the discount having narrowed since Q1 2020, the board is once again issuing shares at a small premium to NAV.
As we discuss in Portfolio, the managers believe that their sector has a number of interesting characteristics that make it currently attractive. The team believe that M&A – always a presence in the sector – will be a strong tailwind for their strategy. Many characteristics the team prefer are also characteristics that corporate acquirers look for. IBT’s managers believe that their current positioning may set them up for a strong period of relative returns.
Historically, the IBT team have delivered better returns than the biotechnology market with lower volatility, thanks to a valuation aware approach and preference to reduce active risk ahead of binary events.
Aside from the stock picking skills the team bring to a high growth sector, another attraction for investors is the consistency of the dividend. As the past 12 months have shown, the fact that the dividend is paid from capital means that it is not subject to the same pressures as dividends paid from current earnings and the underlying assets provide a very different investment profile from the usual equity income sources.
|Strong and specialised team, with a unique approach to biotechnology investment
||Biotechnology sector is inherently more volatile than wider equity indices
|Offers the combination of a solid dividend yield and good prospects for capital growth
||Recent history illustrates short-term discount volatility can be high
|Risk-mitigating investment process has seen the trust deliver outperformance of the benchmark over five years, with lower volatility
||Unlisted holdings are highly illiquid, and given their maturity, higher risk