The manager of the BB Healthcare trust has explained why focusing on quoted companies is best when investing in the healthcare sector.
Paul Major said investing exclusively in listed companies helped manage the risks associated with investing in healthcare stocks and pointed to the "challenges" other funds have had in investing in both quoted and unquoted stocks.
Earlier this year Neil Woodford, who has invested in unquoted healthcare stocks, was forced to suspend his Equity Income fund as redemptions mounted up due to the fund's poor performance.
Mr Woodford had breached liquidity rules because of the high proportion of unquoted stocks in the fund, and the level of redemptions meant he was having to sell off quoted stocks, compounding the problem - ultimately leading to the fund's suspension.
Mr Major said one of the reasons he focused on quoted companies was because the trust was concentrated, with only 28 stocks in the portfolio.
He said: "Given that it is concentrated and given that we are taking these operationally geared bets on companies we think are exposed to particular areas within healthcare, we thought it was important to have liquidity so that investors are confident we can react within the portfolio to any changes that happen on a regulatory basis.
"Healthcare from a developmental point of view is a very risky business, as people know. If you look at pharmaceuticals for example, the probability of success for a clinical project becoming a drug that actually makes money is only 4 per cent and we all know as well that there's billions of dollars of [research and development] costs between the two.
"So having a liquidity criteria means we have the flexibility to manage risks internally within the portfolios as well and I think we have seen with other funds that you can have challenges when you mix quoted with unquoted equities together and we were very keen to avoid that with the structure of the fund we set up."
The £540m trust was launched in 2016 and over the past year it has lost 9.64 per cent underperforming its sector, the AIC Biotechnology and Healthcare, which lost 5.17 per cent.
damian.fantato@ft.com
