Science, particularly related to healthcare, is always moving forward. Over the next two decades, treatment will become more preventative, ever more targeted and involve all aspects of genetic research. International Biotechnology Trust (IBT) aims to harness the leaps and bounds that companies at the frontier of science make, to deliver strong capital growth for shareholders, but also deliver a consistent dividend income.
During the second half of the calendar year, Ailsa Craig and Marek Poszepczynski, the co-managers of IBT, have been adding exposure to companies at the small cap end of their universe of stocks. They have a valuation aware approach to stock picking that has been applied consistently over time. This year, this has led them to add to small caps at the expense of mega caps, in a year that has seen a marked divergence in performance between the two. In the managers' view, the valuations of the companies carrying out the most dynamic and exciting science have corrected to more realistic levels, and they are enthusiastic about their prospects – noting that consolidation and M&A is picking up which should act as a tailwind to performance.
On the surface, the trust has underperformed its benchmark index over the 12-months to 31 August 2021. That said, as we illustrate in Performance, our analysis suggests that all of the underperformance is down to not owning Moderna and BioNTech, which the managers were prohibited from owning thanks to their colleague Kate Bingham’s position as Chair of the UK’s Vaccine Taskforce.
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 4.4% at current prices.
Analyst's View
The team invests in both public (listed) and private (unlisted) companies to achieve their aims, bringing several advantages that we discuss in Portfolio. This means that IBT offers a unique exposure when compared to peers. The team employs 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.
Until recently, the team had achieved its aims, but two stocks driven by retail flows to very high valuations have put their performance behind that of the benchmark. We note IBT continues to deliver returns with lower volatility. As we highlight in Performance, our analysis shows that excluding the vaccine stocks that the managers were prohibited from owning, the team have moderately outperformed over the 12 months ending August 2021. We believe that Ailsa and Marek’s consistent and logical approach to active management will enable them to continue to outperform over the medium to long term, and a recent rebound in relative performance gives cause for optimism.
IBT’s discount has widened modestly, and now stands at 7%. With the portfolio now more exposed to the less frothy, yet highly exciting and innovative small cap end of the universe, IBT looks well positioned for investors looking for a long-term growth strategy.
| bull | bear |
| 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 historically seen the trust deliver good performance, with lower volatility than the benchmark |
Unlisted holdings are highly illiquid, and given their maturity, higher risk |
