Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by BB Healthcare. 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.

Overview
BBH’s discount has widened, and the managers' increased gearing shows their confidence in prospects…
Overview

BB Healthcare (BBH) is a high conviction, unconstrained, long-only vehicle invested in a concentrated portfolio of healthcare companies that the managers believe provide innovative solutions to what they view as ‘broken’ healthcare systems around the world.

As we discuss in the Performance section, the sell-off in markets we have experienced has been indiscriminate – especially amongst mid and small-cap stocks to which BBH is largely exposed. As a result, BBH’s NAV has underperformed over the short term, although the managers’ long-term track record against the trust’s twin objectives remains strong.

The managers’ view is that “history will look back on this moment as a fantastic relative opportunity for long-term healthcare investors”, and so have been adding to gearing (see Gearing section). The team have marginally increased the number of stocks in the portfolio (to 33), as well as invested more capital in portfolio constituents in the specialist diagnostics, biotechnology and services sectors. In our view, this illustrates their confidence in long term prospects, but also that they are truly fundamental stockpickers.

Since launch, a large part of the dividend has been funded from capital, giving the managers flexibility to pursue the best total returns they can achieve from the investments they make. The target dividend for the 2022 financial year is 6.47p, representing a yield on the current share price of 3.65%.

As a result of the volatility in markets recently, BBH’s shares currently trade on a discount of 6%, which compares with a one-year average premium of 1.2% (Source: Morningstar).

Analyst's View

BBH’s exposure to mid and small caps marks it out from peers and the benchmark but also explains the relative performance over the last six months or so. Over the long term, mid and small-cap companies are expected to grow faster than large ones, and the healthcare sector is no different. However, at times, market sentiment can mean small and mid-cap stocks can fall significantly faster than larger, more liquid stocks – especially in liquidity-driven markets. The managers are fighting these headwinds currently but appear resolute in their belief that the historically strong returns delivered from their investment process will revert.

Since launch, a large part of the dividend has been funded from capital. We observe that this enables shareholders to benefit from a regular income but does not hinder total returns by the managers having to invest in dividend-paying companies with lower growth prospects. As such, BBH offers a very complimentary exposure to equity income investors, with an attractive level of dividend derived from capital and an underlying exposure that is very different from typical income exposures to the healthcare sector.

BBH has exhibited higher volatility than its peers. However, the managers have used this extra risk well and delivered attractive risk-adjusted returns historically, with a higher Sharpe ratio than their peers. Investors who share the conviction of the manager in the medium to long term fundamental prospects of the portfolio companies may see the current discount level of 6% as an opportunity, given the long-term average premium to NAV that the shares have traded at historically.

Bull

  • Very differentiated offering, with highly active approach
  • Excellent long-term track record, with manager having added significant value through stock-picking
  • Attractive dividend yield (albeit paid from capital)

Bear

  • Narrow focus, and concentrated portfolio presents risks relative to more diversified portfolio
  • Dividend based on NAV, which means that if the NAV falls year on year, it could mean a decline (although the board could choose not to pay a lower dividend)
  • Potential to gear, combined with concentrated portfolio, can translate into high NAV volatility
Continue to Portfolio

Fund History

14 Apr 2022 The inevitabilities: death and taxes
Biotech has had a rough ride lately but, as the world gets older and richer, our analysts think long-term secular growth is inevitable…
30 Mar 2022 You say tomato…
Do it yourself or put it into a global fund and leave it to the experts - our analyst debate the merits of each approach...
25 Mar 2022 Slides and Audio: BB Healthcare
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 17 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
07 Mar 2022 Fund Analysis
BBH’s discount has widened, and the managers' increased gearing shows their confidence in prospects…
01 Mar 2022 Results analysis: BB Healthcare
The team behind BBH are bullish on the long-term outlook and gearing up after big falls in share prices among healthcare stocks…
22 Feb 2022 Gearing up for recovery
The team at BB Healthcare think the continuing market rout for growth equities has created a fantastic opportunity for investors brave enough to weather the ongoing storm…
24 Dec 2021 Short term pain, long term gain
The team behind BB Healthcare Trust think the chaos being caused by the Omicron variant could create opportunities for long term investors…
10 Nov 2021 Fantastic growth funds (and where to find them)
We found them in India, Japan, frontier markets, healthcare and the global sector – and here they are…
10 Nov 2021 Slides and Audio: BB Healthcare
Download the presentation and listen to the audio from our 'Fantastic growth funds (and where to find them)' conference on 4 November...
01 Oct 2021 Things can only get better (and they will)
The team at BB Healthcare see brighter days ahead despite the best efforts of a sensationalist media to make it feel like doomsday…
09 Sep 2021 Fund Analysis
“Rarely better exposed to higher quality or more transformational science”...
30 Jun 2021 The long (and short) of future healthcare
We examine the implications of demographic change for investors...
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…
04 Mar 2021 Slides and Audio: BB Healthcare Trust
Download the presentation and listen to the audio from our 'Ideas for your ISA' Spring Conference on 03 March...
02 Mar 2021 Results analysis: BB Healthcare Trust
After another set of strong results, we look at how BBH has positioned itself for another year of outperformance…
10 Feb 2021 Fund Analysis
BBH is a potentially interesting addition to growth portfolios and for investors looking for income...
09 Jul 2020 The next big thing: two mega-trends that everyone should own
Tech seems to beat every other sector hands down – in both up and down markets – but nothing lasts forever. Where else should investors be looking for secular growth themes?
17 Jun 2020 Fund Analysis
BBH has a differentiated approach to a secular-growth theme...
View all

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