A potential buying opportunity: Worldwide Healthcare Trust

Market sell-offs tend to provoke some rather indiscriminate selling, which can provide buying opportunities for more discerning longer term investors. One potential example is the Worldwide Healthcare Trust, a London listed investment trust that trades under the ticker WWH.

The one billion pound fund aims to achieve a high level of capital growth by investing in the global healthcare sector. It is managed by OrbiMed Capital, which specialises in this area of the market and has a team of more than 40 professionals, many of whom have scientific and medical backgrounds that help them to assess the potential opportunities.

They have put together a relatively diversified portfolio of 73 holdings with the top ten accounting for just over 40% of the assets. Two-thirds of the fund is invested in North America, which is where most of the largest healthcare companies are based, with a further 20% in Europe and the rest in Asia and the Emerging Markets.

Investing in a single sector is a lot more risky than choosing stocks from different industries, but the detailed fundamental research does a lot to mitigate the potential pitfalls. It also allows the managers to pick out the businesses with the best chance of developing effective new treatments that could have a huge market value.

The Healthcare sector has outperformed the broader market for a sustained period of time, but the fund managers remain confident about the fundamentals and expect the valuations to benefit from more M&A activity and the strong pipeline of new products.

In the last 10 years the fund’s share price has risen by more than 300%, whereas its benchmark, the MSCI World Healthcare index, was only up 200%. The shares peaked at £20.97 a few weeks ago, but have since dropped back 11% to £18.57. They now trade on a 4% discount to NAV.

One of the main reasons for the recent fall was that the fund owns 21 China-based healthcare companies listed on the mainland A-share market. These were sold down along with the rest of the local Chinese stocks, although the manager has described it as a healthy correction.

Worldwide Healthcare Trust has a superb long-term performance record and is likely to continue to deliver strong returns. Investors who are comfortable with the higher risk of a specialist sector fund should consider whether the recent weakness offers an attractive buying opportunity.