17-07-2025
The healthcare sector is unloved – this trust is a prime example
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest.
Questor believes the healthcare sector is looking unloved at the moment. Sven Borho, the co-manager of Worldwide Healthcare Trust, the largest investment trust focused on the sector, agrees. In fact, he thinks the sector has been out of favour for most of the past decade.
Borho puts the blame for this squarely on the US debate around drug pricing, and while Questor agrees that it has had a big impact on sentiment, so too has the shift from the low inflation/low interest rate environment that prevailed before 2022.
While there had been mutterings about drug prices for a long time, it was a tweet by Hillary Clinton in September 2015, who was then on the campaign trail, that sparked an upset in the sector. She was promising to tackle price-gouging in the speciality drug market, which set the ball rolling on a series of measures from both sides of the US political divide.
Recently, this has culminated in President Trump's May 2025 executive order aimed at bringing US prices for patented drugs down to the levels charged in other countries. Last week's threat of a 200pc tariff on imports of drugs manufactured outside the US is another complicating factor.
However, Borho feels that investors have tended to be overly negative in response to threats to control drug prices. He also observes that, historically, Republican presidents have been good for the sector.
The Trump administration's choices for the heads of the various Federal healthcare bodies may have been controversial, but Borho's sense is that bodies such as the Food and Drug Administration (FDA) are becoming more efficient.
In recent years, the trust's high exposure to biotech companies has weighed on its performance. As outlined in this column's recent appraisal of RTW Biotech Opportunities, the biotech sector suffers not only from political pressures but a low sentiment from an investor base currently wary of loss-making and unproven companies – unfortunately, the bread and butter of the biotech industry.
Nevertheless, Borho is keen to stick with this approach as he believes that, over the long run, capturing the benefits of innovation is key to generating outsized returns.
He points out that biotech companies were responsible for almost two thirds of all clinical trials that began last year and most – 85pc – of the novel products approved.
At the same time, many big pharmaceutical companies face the prospect of lucrative products coming off patent and these companies need to acquire promising biotech businesses to maintain their revenue lines.
Relative to its benchmark, Worldwide Healthcare is underweight big pharma, which was 40pc of the MSCI index at the end of June but 18pc of the trust's portfolio – it had a corresponding overweight exposure to biotech.
However, there are also exciting developments in areas beyond biotech. Over Worldwide Healthcare's latest financial year, some of the strongest contributors to its returns were medical equipment companies, including Boston Scientific and Intuitive Surgical.
Boston Scientific has been making great strides in the cardiovascular field, while Intuitive Surgical's da Vinci robotic surgery equipment is delivering better surgical outcomes for patients.
Medical technology and devices accounted for a third of the trust's portfolio at the end of June.
Worldwide Healthcare turned 30 in April, and was one the best-performing trusts over that period, offering a total return of about 4,000pc. However, over the past five years, the trust has lost money for shareholders.
Unsurprisingly, that has put pressure on its share price discount to net asset value. The board says that it will buy back stock when the discount is wider than 6pc, but for most of the past 12 months the discount has been in double digits, which opened the door to activist Saba to build a 5pc stake in the trust.
The board has stepped up the pace of share buybacks and both the discount and Saba's stake appear to be coming down now.
Questor agrees with the manager that there is plenty to get excited about in the healthcare sector over the next few years. Borho foresees a time when most cancer is treated as a chronic disease and much is curable.
He predicts advances in the area of neurodegenerative disease such as Alzheimer's and Parkinson's to help improve and extend lives and hopes new gene therapies will cure rare diseases. He also thinks that artificial intelligence will help guide diagnoses, relieving pressure on GPs.
Other trusts with a similar remit have done a better job of navigating this difficult period for the sector, so the big question is whether Worldwide Healthcare is the best way to take advantage of this theme.
While the jury is out, the successful history of the trust can't be ignored.
Questor says: hold
Ticker: WWH
Share price: £3.07
