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BB Healthcare: we won't buy 'price gougers'

Bellevue Asset Management has raised £150 million for BB Healthcare (BBH), which is only the third new investment company to launch on the London Stock Exchange this year.

In this video interview, co-manager Paul Major explains the similarities between the new investment trust and its successful Zurich-based BB Biotech (BION) fund.

Major outlines the long-term growth potential in healthcare and states his belief that there is a huge buying opportunity following the US election.

Healthcare was a hot topic in the presidential debate with Democratic candidate Hillary Clinton threatening to tackle 'price gouging' or exorbitant price increases by some companies in the industry.

Major explains why BB Healthcare shuns those companies preferring to find stocks with more sustainable business models.

BB Healthcare will operate a focused global portfolio of around 35 stocks with which it will aim to beat the MSCI World Healthcare index. It will seek to generate a 3.5% dividend yield through returning some capital to investors each year.

An annual redemption facility will allow investors to sell their holdings at close to net asset value (NAV). This mechanism is designed to ensure the trust's shares do not fall to a big discount below NAV. 

Can't watch now? Read the transcript.

Gavin Lumsden: Hello, with me today is Paul Major of Bellevue Asset Management, a Swiss fund management firm that is launching the BB Healthcare investment trust next month.

Paul, very good to see you. It’s been a long time since we had an investment trust launch because of all the stock market uncertainty so it’s good to see that happening. What is so compelling though about healthcare that it deserves a new fund? Investors are sometimes wary of sector specialist funds.

Paul Major: I think especially in the current environment with global growth potentially being challenged, healthcare is one of the few sectors where you can see very clearly the long-term drivers being there. And also you can see continual innovation for many decades to come that will deliver new things for patients that also offers growth so there are very few sectors where the long-term fundamentals are as attractive as healthcare.

GL: An ageing population …

PM: Ageing population, increasing wealth. You see as wealth increases around the world people spend more on looking after themselves, people are more active into later years, they’re more interested in their health and then obviously we have innovations addressing new diseases all the time offering possibilities to treat things that previously weren’t treatable.

GL: Bellevue is a specialist pharmaceutical, healthcare investor. You run a very big fund in Switzerland called BB Biotech, which is available in London but has delivered an astonishing return over 10 years of 477% total return I saw earlier. Is that something that the healthcare fund could hope to replicate?

PM: We certainly have done a lot of work as to the opportunity in broader healthcare versus biotech and it is our belief that yes there is a similar opportunity in healthcare that is comparable to the one in biotech. What’s happened over time is that healthcare is getting increasingly intermeshed together so that a lot of the work we do, a lot of the day to day on the biotech fund reveals opportunities that are outside the mandate of that fund so we thought there was great synergy in having a sister trust alongside it with a broader mandate so we can make use of all of those things that we learn and then gain performance that way through the processes we have.

GL: Now the timing of this launch can’t be accidental, it’s coming soon after the US election. Healthcare was a huge topic in that election. Since the victory of Donald Trump we’ve seen a significant relief rally in healthcare and biotech stocks because there was a lot of worry that if Hillary Clinton had got in she was going to clamp down on excessive drug prices. With the sector so buoyant I wonder has the investment opportunity gone?

PM: Well I think let’s come back to those very clear, long-term fundamentals first and foremost. Secondly, you’re absolutely right there has been a very broad sell-off across all of healthcare, particularly affecting biotechnology and some areas of pharma where pricing for individual drugs is quite high. But that sell off has been very, very broad and effectively has been a run to the door. And if you look at where valuations are relative to the historical long-run averages they’re still incredibly low. So we’ve had a recovery but we’ve barely taken back a quarter of what’s been lost in the last 18 months or so. And I think coming back to the opportunity I would be sitting here telling you I think it’s a compelling opportunity even if Hillary Clinton had won. The debate that we had in the US was primarily, as you say, around a very narrow band of issues focused on drug pricing for companies that were at the more egregious end.

GL: So-called ‘price-gougers’.

PM: Exactly, exactly. And those companies are very far outside of our investment processes.

GL: You don’t touch them?

PM: We wouldn’t because we tend to be very focused on underlying demand. We can’t model price increases, no-one can, they’re completely unpredictable, so we focus on where we see underlying demand growth. So those companies that have been most penalised by all of this and have been in the spotlight would never and have never been companies that we would own. Similarly across the healthcare supply chain other companies less visible maybe that benefit from these price increases, ta king a little bit of the increase as it passes through the system. And those too because we can’t interrogate their profitability won’t meet our due diligence processes. We wouldn’t be invested in those. So I think what this has done is it’s brought values down across the board and it’s simply made what we think is a compelling long-term opportunity.

GL: Well Paul we’ll look forward to see how you progress with the new fund. Thank you very much.

PM: Thank you.

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