Every fund or investment trust has, or at least should have, a clear set of aims and objectives; whether they are to target high returns, capital preservation, an above-average level of income or low levels of volatility. 
However, one investment trust which came to the market in October 2012 is unique in this respect as though its focuses on “delivering attractive medium to long-term returns”, the major priority is to find a cure for cancer.
Though there has been an increase in the number of more “ethical” funds over recent years, the Battle Against Cancer Investment Trust, or BACIT, stands out as it is genuinely charitable given it doesn’t charge its investors any fees.
Instead, the management team of Tom Henderson, Arabella Cecil, John McDonald and Fenella Dernie go to fund managers and ask them to run a proportion of their portfolio for free in return for trying to aid the fight against the disease.
Henderson, who has close to 25 years’ experience in financial markets, says it makes BACIT a fund of funds which can genuinely outperform over the long term.
“Fees destroy returns and no-one knows what asset classes are going to perform well,” said Henderson, speaking at the Cantor Fitzgerald ‘Opportunities in Multi Asset Investing’ seminar.
“So what you have with BACIT is an all-weather vehicle and it is unique as it is the only company listed in the world where no-one gets paid. There are no payments to the team at BACIT and there is no payment to the managers who look after our money.”
“The difference between us and any other fund management group in the world is that we don’t want any more money. We don’t get anything from you and it’s not our job to turn your capital into our commission.”
He added: “Our job is to make as much money as possible and try and help find a cure for cancer.”
Obviously, the idea of a 0 per cent annual management charge with no performance fee seems alien. But that’s not to say that investors don’t part with some of their cash.
“What we do is have a partnership with the Institute of Cancer Research, which has allowed us to get the fund managers for free. So, instead of different sets of fees, we give an annual donation of 1 per cent,” he said.
That donation comes out of the trust’s NAV.
Nevertheless, he says that this charitable nature means he and his team can get the best fund managers on board and he admits he has been pleasantly surprised with the amount who have signed up.
“Clearly the difficulty with what we do is getting the best managers in the world to come and run our money for free.”
“It isn’t easy, but I’m pleased to say that we have had a 70 per cent hit rate in trying to get managers on board and we’ve know who we have wanted so we’ve been very targeted. What’s interesting now is that we haven’t had anyone turn us down in the last six months.”
For example BACIT – which is effectively a traditional fund of funds except for its charging structure and aim – counts the likes of FE Alpha Manager James Salter’s Polar Capital Japan Alpha fund and the £3.2bn Majedie UK Equity fund as top 10 holdings, as well as various global hedge funds such as Parity Value and Seia Global Macro.
There are slight differences, however, as the trust also has the ability to invest up to 1 per cent of its assets in CRT (Cancer research technology) Pioneer fund which was set up by Cancer Research UK to fund university oncology and drug discovery.
Interestingly, BACIT also took part in the launch of FE Alpha Manager Neil Woodford’s Woodford Patient Capital Trust in April.
“Clearly, we know what the universities are doing given our closeness to them and clearly, so does Neil Woodford,” Henderson said.
Performance of manager versus peer group composite since Jan 2000
Source: FE Analytics
The former Invesco Perpetual manager, who has massively outperformed over the long term, launched his new trust to fund early-stage and early-growth companies in the UK and will fish heavily in the university spin-out space.
It was the biggest investment trust launch of all time, raising £800m at IPO, and has quickly jumped onto a premium of 6 per cent.
It must be noted, however, that in its first year the trust is likely to look very similar to the CF Woodford Equity Income fund so investors will have a relatively high weighting to tobacco stocks.
While the aim of BACIT is admirable and its charging structure is appealing, there will no doubt be investors who see the trust as more of a gimmick rather than a credible investment strategy. Certainly, though curing cancer is close to the majority of people’s hearts, investors will always want to make sure that performance is up to scratch.
According to FE Analytics, BACIT has returned 23.85 per cent since its launch, which is well behind that of the IT Global sector’s gains. It is, however, ahead of the HFRI Fund of Funds Composite which is one of the indices it benchmarks itself against.
Performance of trust versus sector and index since October
Source: FE Analytics
Nevertheless, while only over a short time frame, BACIT has by no-means shot the lights out.
There are a number of reasons for that performance, though. Firstly, the team at BACIT have taken their time to invest their capital as they have been on the road finding managers – which has proven to be a drag in what has largely been a rising market. BACIT is now 97 per cent invested, however.
On top of that, as the graph below shows, the discount on the trust has widened quite substantially from a 14 per cent premium to NAV in late 2013 to a discount of 5 per cent earlier this year. It is currently trading at NAV.
Trust’s absolute discount/premium since launch
Source: FE Analytics
Despite that, investors could have certainly found more profitable investment strategies over the period in question. One expert who is sold on BACIT, however, is Cantor Fitzgerald’s Charles Tan.
“I rate BACIT highly and I use it as a core holding in my own portfolio,” the analyst said.
“This is something I’m never going to sell. BACIT is all about steady capital appreciation over time and they aren’t going to issue any more shares so supply is tight. It is unique and no-one other than Tom Henderson would be able to pull it off.”
Tan, who uses BACIT alongside his holding in BH Macro, rates the fee structure, its charitable element and the team’s ability to pick and bring on board the best possible managers.
He also notes that the closed-ended fund’s aim is to generate annualised returns of 10 to 15 per cent, something it is so far achieving at 11.5 per cent.
“If you wanted to invest in the best fund managers, you normally have to pay a performance fee as they can usually get away with it. With BACIT, you get access to the best managers but without fees,” Tan said.
“Also, Tom Henderson pays £1m to £2m out of his own pocket each year for the trust’s analysts and infrastructure. That’s what it all comes down to as he is doing this out of the goodness of his own heart.”
“So, why not make a bit of money and try and help change the world?”
In terms of positioning, the team at BACIT favour European and Japanese equities due to quantitative easing from the European Central Bank and Bank of Japan. It also has a high weighting to hedge fund macro managers due to the belief that they will be able to make the most of heightened volatility in financial markets.
Its underweights are towards US and emerging market equities as the team believe the stronger US dollar will be hinder possible returns. BACIT is also very underweight fixed income due to the prospect of rising bond yields.
Henderson is quick to point out that while the external managers are working for free, he and his team have no issue selling their funds if they think there are better opportunities elsewhere.
BACIT also pays a dividend twice a year, but the yield is currently below 2 per cent.
