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Fund Profile

International Biotechnology 29 May 2019


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by International Biotechnology. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

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International Biotechnology Trust has seen a strong rebound in performance terms this year after performing relatively well versus peers in 2018, when a strong move toward ‘risk-off’ sentiment among investors saw equities generally in negative figures, with biotech no exception.

As at 7 May 2019, the trust is up 10.6% in NAV total return terms since the start of January, beating the NASDAQ Biotechnology Index, the peer group and its main rival – Biotech Growth Trust.

Last year, when the MSCI World was down 7.4% and the NASDAQ Biotechnology Index lost 3.2%, the trust lost just 4.4% - outperforming Biotech Growth, which lost 14.3%, by a whacking margin.

The four strong management team, led by Carl Harald Janson, aims to generate long term capital growth and deliver a yield of 4% of NAV via a portfolio of US, European and – to a lesser extent – unquoted investments in the biotech sphere.

In addition to the diversification benefits afforded by the trust’s scale, with almost 100 underlying holdings including the unquoted element, the trust’s unique focus on avoiding ‘binary’ risk events has helped it to avoid a number of ‘blowups’ which have affected its rivals, notably Biogen’s abandoned Alzheimer’s drug trials which saw it lose more than 30% of its market cap at the end of March this year.

The trust’s unquoted portfolio – where the emphasis has shifted from direct investments to investments via a venture fund – is already proving its worth, delivering 1.3x capital invested so far, with the vast majority of its holdings still valued at or close to their original investment value, leaving plenty of room for upside.

The trust has seen significant improvements to its share register, too, with far less concentration and a far broader spread of investors – among whom more than half are now private wealth managers or retail investors. Much of this has been driven by the introduction of a dividend policy which sees the trust pay out a yield of 4% of NAV per annum, converting some of the capital growth it generates to do so.

Whilst converting capital to income does limit the maximum potential for capital growth, the appeal of this yield means the trust has moved in from a persistent discount and now trades at a premium, and has been issuing new shares since Q4 last year – of which more than half a million have come to market. This should, in time, mean the trust’s ongoing charges ratio is lower as the trust’s fixed costs are spread over a wider shareholder base.

This is an interesting time for the trust. The managers believe that with economic growth on a fairly solid footing going forward, and long-term demand for therapeutic drugs driven by an ageing population, there is a secular tailwind behind biotech companies. We have heard from the trust before that a more ‘business friendly’ approach taken by the Food and Drugs Administration would lead to greater opportunities among biotech companies, and that seems to be playing out; last year saw more new drugs approved by the FDA than ever before.

Despite this, valuations among biotech companies remain very reasonable – particularly when compared with other sectors in the US. Indeed, while popular wisdom tells us that US equities are expensive after a long rally, the biotech sector is significantly cheaper in p/e terms than other major sectors in the US and far cheaper than the S&P500. Large cap biotech stocks are trading at record low p/e’s.

Large cap biotech valuations vs other US sectors

Source: Bloomberg, all sectors represented by S&P subsector definitions, updated through 4/8/19

Against this backdrop, and with mean reversion for biotech p/e ratios in mind, International Biotechnology is a compelling option for long-term growth and a solid income, with a clear – and clearly effective – approach to mitigating risk by avoiding ‘binary events’ where share price volatility is at its most dramatic. This latter feature particularly, given the biotech sector’s elevated risk profile, has obvious appeal.

Kepler View

The long-term demographic tailwind behind healthcare focused companies – as the developed world gets older and fatter, and expectations of better healthcare in the developing world increase in line with living standards – is clear. International Biotechnology Trust is a direct beneficiary of that trend, and we think the strength of the management team, particularly their practical experience in the industry – not just as investors – puts the trust in good stead to profit from it.

Biotech is a ‘risk-on’ sector, however, and drawdowns can be intense. We think the team deal with this well via their strategy of mitigating risk by diversification across sub-sectors, selecting therapeutic areas with defensive characteristics, avoiding large “elephants” accounting for any more than 10% of the portfolio, and avoiding binary events – divesting stock as companies approach crucial trials even if this means missing out on the last few yards of upside – but clearly investors should be aware that volatility is a feature of this strategy.

That said, the risk of drawdown is more than compensated by the potential upside – or has been in the past. The maximum drawdown for the trust over the last ten years was 26% - a relative trifle compared to the 385% it delivered over the same period in NAV terms. Particularly for investors with long time horizons, then, we think the trust has clear appeal.

Biotech companies are knocking on an open door. Last year saw the highest number of drug approvals ever by the FDA and the new boss, Ned Sharpless – director of the National Cancer Institute – seems as pro-business as his predecessor.
Drawdowns for the trust and the sector can be severe
Offers a solid yield and good annualised returns, which haven’t been dented too much by the introduction of the income from capital policy
Biotech stocks are perceived as ‘risky’ and are likely to fall further and faster during any ‘risk off’ period for equities generally
A highly experienced manager who has a proven track record of outperformance supported by a strong and specialised team.

Continue to Portfolio

Fund History

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18 Mar 2024 Fund Analysis
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Thematic funds have seen significant outflows over the past two years…
01 Mar 2024 Behind the trust: International Biotechnology Trust plc
Biotech companies stand to inject high returns and positive social impact into an investor’s portfolio and International Biotechnology Trust has an impressive track record of doing this with lower volatility than the index (NASDAQ Biotechnology Index), while paying a healthy dividend yield...
27 Feb 2024 Talking Trusts: An introduction to investing in biotech with International Biotechnology Trust
We talk about what IBT offers for investors looking for exposure to the biotech sector…
19 Mar 2024 International Biotechnology Trust
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Rewatch this webinar as part of our month-long online series 'Themes for your ISA in 2024' hosted by the team at Kepler Trust Intelligence throughout March...
Watch Recording
10 Nov 2023 Results analysis: International Biotechnology Trust
IBT has delivered strong outperformance in a tough environment...
08 Nov 2023 Small cap healthcare stocks look cheap
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18 Oct 2023 Computer says no
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28 Sep 2023 A biotech bounce back? With IBT Manager Ailsa Craig - Podcast: Trust Issues #22
We talk the move to Schroders, managing risk, and reinvesting the proceeds of M&A activity...
15 Sep 2023 Fund Analysis
IBT managers’ unique approach set to continue at Schroders…
03 Aug 2023 Flash Update: International Biotechnology Trust
IBT moves to Schroders, with no change to team or process and the prospect of lower costs over time…
03 May 2023 Results analysis: International Biotechnology Trust
IBT maintained its strong performance into the first half of its financial year…
23 Mar 2023 The first course: week one of our ISA event in review
We look at the first four presentations of our ISA season event…
09 Mar 2023 International Biotechnology Trust - Harnessing healthcare for growth and income
Ailsa Craig & Marek Poszepcynski
Rewatch this webinar from our month-long online series 'A feast of ideas for your ISA' hosted by the team at Kepler Trust Intelligence throughout March...
Watch Recording
15 Feb 2023 Flash Update: International Biotechnology Trust
IBT has flagged an upcoming change to its management arrangements…
20 Jan 2023 Podcast: Trust Issues #8 - Biotech investing in 2023 with IBT managers
Ailsa Craig and Marek Poszepczynski update us on goings on in the biotech industry...
11 Jan 2023 Solving the Rubik’s Cube
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04 Jan 2023 Here we go again
We review our ‘top picks’ for what was a wild year and place our bets for the year ahead – which doesn’t look much calmer…
28 Dec 2022 Calling time
As the year draws to its close, our analysts highlight the articles they think are the team’s best calls from 2022…
12 Oct 2022 Fund Analysis
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20 Jul 2022 Ingredients for success
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31 May 2022 Five alternative trusts for income investors
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27 May 2022 Slides and Audio: International Biotechnology
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14 Apr 2022 The inevitabilities: death and taxes
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30 Mar 2022 You say tomato…
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30 Mar 2022 Fund Analysis
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08 Dec 2021 Further cancer breakthroughs hinge on biotech investment
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13 Oct 2021 Fund Analysis
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20 May 2021 Fund Analysis
IBT has had a change of management - but no change of strategy…
07 Apr 2021 Paging Dr Alpha
The pandemic has boosted secular growth drivers behind healthcare as an investment theme...
10 Mar 2021 Spring Conference '21
Audio and presentations from 21 of the UK’s leading investment trust managers…
08 Mar 2021 Slides and Audio: International Biotechnology Trust
Download the presentation and listen to the audio from our 'Ideas for your ISA' Spring Conference on 03 March...
04 Jan 2021 Fund Analysis
IBT offers a differentiated way to access strong growth prospects at an undemanding valuation...
30 Sep 2020 Slides and Audio: International Biotechnology
View the presentation and listen to the audio from our 'Alternatives for Income Investors' event on 29 September...
26 Aug 2020 Trump v. Biden
Two of our analysts debate who will win the US election and what that means for markets…
09 Jul 2020 The next big thing: two mega-trends that everyone should own
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08 Jul 2020 Fund Analysis
IBT offers a differentiated exposure to a secular growth theme complemented by a solid yield…
25 Jun 2020 Selling the family silver
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27 Feb 2020 Robbing Peter to pay Paul?
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12 Dec 2019 Fund Analysis
A highly experienced management team and a flexible portfolio of quoted and unquoted biotechnology stocks, with a yield target of 4% of NAV...
29 May 2019 Fund Analysis
We discuss the opportunity as biotech stocks trade at record low valuations, despite strong prospects for the sector...
03 May 2019 A steady hand
Chairman of International Biotechnology Trust, John Aston, explains how his unusual background in both biotechnology and banking come together on the trust...
15 Apr 2019 Art meets science
Carl Harald Janson explains how his experiences in science and business blend seamlessly in his management of International Biotechnology Trust...
06 Feb 2019 Income for the long haul
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31 Oct 2018 The Trump effect
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10 Oct 2018 Fund Analysis
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