Complete your registration today for a chance to win £50 John Lewis vouchers in our weekly draw Enter now
Kepler Trust Intelligence
Updated 30 Mar 2022
Save Article Download

Disclaimer

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.

When he wasn’t defending the free world from the Nazis at the controls of a Mosquito night-fighter, Australian cricket legend Keith Miller found the time to complete 14,182 runs in first class cricket at an average of 48.9.

Miller, who died in 2004, is widely regarded as international cricket’s first genuine ‘all-rounder’; whose skill with ball and bat made him a force to be reckoned with in both positions. As any follower of the sport will know, players with enough talent to excel at both batting and bowling are rare indeed and, as with sport, so in life, true all-rounders are few and far between.

From an investors’ point of view a true all-rounder must deliver on a number of criteria. For most, it is fair to assume that it would have a strong track record of annualised growth, and perhaps for just as many, a solid yield which could keep pace with inflation. Low correlation with other funds in a portfolio might also be an important for those who have existing investments and, increasingly, a positive impact on society or the environment is considered a must-have.

In years past, UK equity income funds offered one option for those investors concerned with the first and most fundamental two of these criteria; combining the potential for capital growth (albeit sometimes quite modest) with a consistent and sustainable dividend.

The years since Brexit, troubled as they have been by far greater events than the bickering over quotas and tariffs which was to be expected, have put paid to UK equity income as a straightforward option. Dividends from UK companies, already stumbling under the weight of the fallout from the Brexit referendum, crashed in 2020 when the Coronavirus first took its place on the world’s centre stage, falling 44% according to data from Link’s Dividend Monitor.

Income focused investors have taken the hint, and data from the Investment Association’s most recent Investment Management Survey shows that in each of the last four years equity income funds have seen significant outflows. The sector saw £2.5bn walk out of the door in the second half of 2020 alone.

The Investment Association says that much of this money has found its way into fixed interest funds, which saw total inflows of £8bn in 2020 even after huge outflows at the start of the year, but with three interest rate hikes already in the last four months, and more likely in the pipe, this type of fund offers little comfort for investors who want the capital they invest to keep pace with inflation.

International Biotechnology Trust (IBT) may offer an interesting solution. The trust, managed by Ailsa Craig and Marek Poszepczynski, aims to deliver long term capital growth by investing in a global (though US dominated) portfolio of biotechnology and life-science companies.

IBT has delivered annualised total returns of 14.69% over the last ten years and – fulfilling the first and second of our ‘all-rounder’ criteria – is able to offer an income as well, paying a yield equivalent to 4% of NAV each year. It can do this because of a structural feature unique to investment trusts; the ability to convert some of the capital growth which is generated by the underlying portfolio into an income payable to shareholders.

While this does take away some of the potential for capital growth (because part of the capital deployed is being taken away to support that income each year), the trust’s strong long term growth profile means it should be able to afford to do this and still aim to generate worthwhile capital growth as well. With M&A being a structural part of the biotech ecosystem, the trust can supplement its dividend payments with cash inflows received when its portfolio companies become the subject of an M&A transaction.

Biotechnology is a high risk, high return area of the market – so investors should be aware of the volatility they may face; but one of the noticeable features of IBT’s track record over the last five years is that it has achieved strong returns with considerably less volatility than its benchmark. This is a result of a conscious effort by the team to deliver returns with lower volatility than the index, a result of its approach to diversifying risks, but also systematically to reduce active exposure to stocks ahead of scheduled trial results or approval decisions by the regulator.

Capital growth over the long term means a rising net asset value (NAV). The trust’s yield commitment is to pay 4% of its NAV, and in that context, should mean that the income it pays increases over time too, which could appeal to those worried about the effect of inflation.

IBT also scores highly on another of our criteria; acting as a diversifier via exposure to a portfolio of highly specialist companies, and with another key differentiator; exposure to unquoted investments, which currently represent 9% of NAV (as at 28/02/2022) under the stewardship of Kate Bingham, now a household name thanks to her leadership of the UK’s COVID task force in the dark days of the pandemic.

Kate’s involvement in the trust is a fitting point at which to remind ourselves of the final criteria we might look for in an investment ‘all-rounder’; a real positive impact from an ESG point of view.

On this measure, the impact that both the quoted and unquoted sides of IBT have as a force for good is obvious. Its very purpose is to generate returns by backing the development of drugs and therapies that will over time save lives, prevent diseases, and improve conditions for perhaps millions suffering from severe illness.

Ailsa Craig put it well when we spoke to her and Marek about their motivations as managers of the trust last year.

“We have seen drugs that we backed in their infancy go on and make a real difference to patient outcomes. Identifying the drugs in development that will become the game-changing treatments of the diseases of our age is what investing at the cutting edge of science is all about”.

A true all-rounder, indeed.

Login to read the full article...

Kepler Trust Intelligence provides research and information for professional and private investors. In order to ensure that we provide you with the right kind of content, and to ensure that the content we provide is compliant, you need to tell us what type of investor you are.

Continue

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.