The International Biotechnology Trust (LSE: IBT) is in a long-term bull run, manager David Pinniger tells Fund Strategy. Rapidly developing technology and the continual need for new drugs are the key drivers. But it’s the level of merger and acquisition activity in the sector that is particularly exciting right now. “There is a lot of money being spent at the moment, especially with the large pharma groups buying early stage companies.”
The £92.3m trust trades at a 12.7% discount to its net asset value (its underlying assets), but has outperformed the FTSE World index in recent years, and returned 27.4% over three years. Most of the fund is invested in America, with 17% in Europe and 5% in Israel.
Biotech is risky. Drug development is a long-winded and costly process where much can go wrong. So Pinniger consults a range of people, including medical professionals, before making investment decisions. The portfolio is kept diverse in order to minimise volatility; mature firms account for the biggest positions with smaller, unquoted outfits getting smaller representations. Even so, Pinniger advises investors to take a long-term view: “Buy a bit of the International Biotechnology Trust, forget about it and come back in ten years. Even with a few bumps, we should have done better than the broader market.”
While ‘big pharma’ is viewed as a safe haven, government spending cuts will have an impact. But Investors Chronicle notes that the trust is still managing to outperform, and reckons it should continue to benefit from compelling valuations in the sector.
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International Biotechnology Trust top ten holdings
| Name of holding | % of assets |
|---|---|
| Cadent | 6.1% |
| Amgen | 6% |
| Pharmasset | 5.4% |
| Teva Pharmaceutical | 5% |
| Gilead Sciences | 4.5% |
| Insulet Corp | 4.2% |
| Shire | 3.9% |
| Celgene Corp | 3.5% |
| Micromet | 3.5% |
| EUSA | 3.3% |