The drawback is always the risk involved, but for the investor with a long-term horizon, trying to maximise gains for a pension or an ISA, this may be a price worth paying. The Biotech Growth Trust
With an aging population and advances in medical science, the healthcare industry is tipped by many as a sector with huge growth potential.
The Biotech Growth Trust is managed from New York by specialist healthcare managers OrbiMed, which also runs the WorldWide Healthcare Trust.
"The Worldwide Healthcare Trust buys big pharma companies but Biotech is trying to find the companies of tomorrow, companies making new drugs, so potentially it will be more volatile," said Simon Elliot, analyst at Winterflood Securities.
"The Biotech Growth Trust will buy companies that depend on how successful drug trials are, so I would certainly put it in the high-risk category."
The trust has provided positive returns in seven out of 10 calendar years since launch, with the cumulative gain being 173.52 per cent over the decade.
Over one year the fund has returned 42.74 per cent against the 19.09 per cent gained by its benchmark Nasdaq Biotech index, which dates only from 2006.
Over three years the fund has returned 110.84 per cent against the benchmark’s 81.65 per cent, and over five years 115.32 per cent against 89.57 per cent.
Performance of trust vs index over 5-yrs
Source: FE Analytics
The gains of the Worldwide Healthcare Trust are more modest, amounting to 73.02 per cent over a decade, but the trust has also lost money in three discrete calendar years out of 10, the same number as its more risky sister trust.
Baillie Gifford’s James Anderson told FE Trustnet last week that he was upping his exposure to healthcare companies.
The manager of the Scottish Mortgage Investment Trust said tech-healthcare companies – rather than the pharmaceutical firms held by the Biotech Growth Trust – were particularly interesting, and could be the bubble of the future once investors cotton on.
Electra Private Equity plc
Private equity trusts invest in private companies and consequently don’t provide the transparency to investors that public companies are required to.
A risky investment area, it suffered badly during the 2008 crisis, with the IT Private Equity sector dropping by 65 per cent.
Since then it has recovered most of its value, with Electra Private Equity outperforming in the falling market and again as it recovered.
"We like private equity as an asset class," said Elliot.
"There was a big sell-off in 2008/2009, but Electra not as much as the others. It’s certainly one we like at the moment."
"Its balance sheet is in good shape and has been well managed. It has some interesting investments in its portfolio. Allflex, the animal tagging company, makes up 12 per cent of its holdings."
Allflex benefits from the EU’s growing demands for the electronic tagging of animals. Electra Private Equity is also invested in esure, which holds stock in Gocompare.com.
"They have been quite opportunistic," Elliot said.
"There is a 25 per cent discount to NAV at the moment, which is an attractive valuation."
In the last decade the trust has returned 172.25 per cent compared with the FTSE All Share’s gains of 60.49 per cent.
Performance of trust vs index over 10-yrs
Source: FE Analytics
Over five years, including the crisis of 2008, the trust lost 1.29 per cent compared with the benchmark’s modest gain of 1.36 per cent.
Both the Biotech Growth Trust and Electra Private Equity aren’t suitable for investors looking for an income as they pay the minimum dividend necessary to preserve investment trust status, preferring to re-invest to boost total return.
Aberdeen New Thai
Another trust with an impressive long-term record is the Aberdeen New Thai Investment Trust.
The portfolio has returned 180.82 per cent since launch in 1989, despite the stock market crash in the mid-1990s which saw it lose 80 per cent of its value.
Performance of trust vs benchmark over 10-yrs
Source: FE Analytics
Anyone who bought it in 1998 when the market and the trust were at their lowest would have seen their initial investment increase by 1,063 per cent.
Returns over the past decade have been strong, with the trust gaining 644.87 per cent in the past 10 years, 121.53 per cent over five years, and 171.3 per cent over three years.
However, whether Thailand can perform as strongly for the next decade is a matter of debate. "The key thing is you have to take a view on Thailand," said Elliot. "It is quite volatile and there are quite a lot of different factors in the country, with the recent coup and political factors."
"Retail investors tend to go to the regional funds, while there is strong institutional interest in Aberdeen New Thai."
"For most retail investors they will have a long-term investment horizon but they are probably not following their investment day by day."
"However, some people will have been to Thailand and be convinced about the potential of the country and will want to invest in it."
"It’s worth noting that Aberdeen has a strong team and very disciplined value approach," he added.
Hugh Young’s Asian equity team heads up the portfolio.