This is Money highlights the ace up Lowland’s sleeve, while Questor thinks conditions could be ripe for a new bull market in healthcare and that Polar Capital Global Healthcare could be the way to play it.

Frank Buhagiar•03 Sep

This is Money: Lowland Investors Bag 26% in a Year – Can the UK Stock Market Revival Boost It Further?

It’s been a good year for Lowland (LWI) shareholders – the share price is up 26% on the back of a buoyant UK stock market. But such a strong gain in a relatively short time frame poses a dilemma, what to do? Take the money and run or hold on for more? In short, stick or twist? Ask the fund’s managers and they believe there could be more to come. Well, they would say that wouldn’t they? But the explanation they offer up could have legs.

That’s because, as joint manager Laura Foll highlights in the above article, the gains made over the last 12 months have primarily been driven by the equity income fund’s FTSE 100 holdings – top-tier names, including Aviva (up 31 per cent) and Barclays (up 58 per cent), account for around 40% of the trust’s portfolio. And that’s the nub. Less than half the portfolio is in FTSE 100 stocks. As the managers point out, “there is more to come if the recovery in equity prices extends to the domestically focused companies that feature prominently in its portfolio.” Domestically focused companies are typically found in the mid and small-cap space. And, according to Foll, “UK equities are still cheap, especially smaller and medium sized companies.”

Share prices can stay cheap for a long time but, as Foll points out, “we are seeing signs that the UK economy is performing better than the market thought it would. OK, it’s not stellar growth. But this is good news for the small and medium sized businesses we own that generate most of their revenues here in the UK. A stronger economy means improved business revenues.” And even if smaller companies take their time in joining the party, at least shareholders can enjoy “Lowland’s ace up its sleeve” – an attractive 4.8% dividend yield. For LWI’s dividends have proved reliable over the years – the payout has been raised in absolute terms for 14 consecutive years – and has never been cut since LWI was launched and that was way back in 1963.

Questor: Subcontract Your Healthcare Investing Decisions to this Team of Scientists

The above Telegraph article kicks off with a piece of advice – don’t invest in something you don’t understand. That’s not to say investors ought to avoid sectors in which they have limited knowledge. For they could always outsource investment decision-making to a fund run by those in the know. Take biotech and healthcare, a sector where the science can be hard to get a handle on. Step up Polar Capital Global Healthcare (PCGH), a fund managed by a team of scientists and specialist healthcare investors. Unlike some of its peers, PCGH invests across the healthcare spectrum, not just biotech. The result, a high-conviction portfolio diversified by industry sub-sector, geography and company size. It’s a portfolio that has performed. Over the seven years to July 2024, the £475m fund has beaten the MSCI All Countries World Health Care Index by around 12 percentage points.

Questor goes on to build an investment case for the sector: biotech stocks have yet to recover fully from their post-pandemic slump which is leading to a surge in M&A activity; the deployment of AI is driving innovation; demand from emerging markets is growing; and advancements are being made in the treatment of previously incurable diseases. Such is the pace of innovation, that conditions could be ripe for a new bull market in healthcare.

And Questor thinks PCGH “is well positioned for the ongoing recovery of the sector, and sufficiently diversified to weather the volatility that comes with the territory”. There’s more. The potential for “some corporate action should limit the volatility of the share price discount.” Mention of corporate action refers to next year’s liquidation vote that was built into the fund’s corporate structure. Ahead of the vote, Questor believes there will be some form of corporate action, leading the tipster to conclude that “if for any reason the discount widens from here, the investment case only becomes more attractive. Questor says: Buy”