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Ian Cowie: my ‘Rumsfeld’ approach to tech & healthcare

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Ian Cowie: my ‘Rumsfeld’ approach to tech & healthcare

One risk of writing a column like this is giving the impression that I think I know more than I do – even when I don’t!

For example, while I am pleased to be a member of the new generation of investors who are taking responsibility for funding our own retirement – rather relying on patrician employers or kindly politicians (spot the oxymoron) – I firmly believe DIY fund managers should beware of our limitations.

While we can all buy shares in consumer-facing companies we admire – and some of my most successful stock picks have been on that basis – there are areas of modern life where I can see some exposure is beneficial but the specifics baffle me. To paraphrase the former US Secretary of Defence, Donald Rumsfeld, these might be described as known unknowns or even, at a company specific level, unknown unknowns.

That’s where professional fund managers and intermediaries can more than justify their costs – especially when combined with the unique advantages of investment trusts. These include gearing – or the ability to borrow in a bid to boost returns – and a closed structure that can protect long-term investors from short-term setbacks. Never mind the generalisations, though, what about some specifics?

Polar Capital Technology (PCT) and Worldwide Healthcare (WWH) trusts have both earned their positions within the top 10 holdings of my forever fund – and are likely to retain them for as far as I can see. Polar Cap Technology is 72% up over 12 months and has doubled shareholders’ money over the last three years, partly by taking big positions in Alphabet (GOOG.O) – the name under which Google is listed in America.

I have been a shareholder for more than a decade – roughly matching the co-fund managers’, Fatima Lu and Ben Rogoff’s, periods of tenure – and firmly believe investors should attempt to buy a stake in the future at a reasonable price today. But I admit I did not have the courage to invest in loss-making Google when it floated at $85 a share in 2004, although it trades at $863 today and has become Fatima and Ben’s biggest single shareholding.

Other major stakes in newish technology companies that have created massive wealth out of thin air include Facebook (FB.O), Samsung and Amazon (AMZN.O). Less well-known but rapidly-growing Chinese rivals Tencent (0700.HK) and Alibaba (BABA.N) also feature in the portfolio for which I am happy to pay total expenses of less than 1.2%. There is no yield at present but income may arise as these companies mature.

Samuel Isaly and Sven Borho have been at the helm of Worldwide Healthcare for even longer – 22 years – adding a genuinely long-term investment strategy to the permanent capital only investment trusts enjoy. In plain English, that means managers are never forced to sell assets just because a specialist sector has fallen from favour among individual investors – a fundamental problem for unit trusts.

That might sound like a tedious technicality but it proved its value a year or so ago when both the American presidential candidates singled out ‘Big Pharma’ for some claptrap about price-gouging. This political knockabout depressed share prices in the biotechnology and healthcare sector by 14% between 12 and 24 months ago. But Worldwide Healthcare’s share price slipped nearly 9% lower while its net asset value fell by less than 7%.

I would have hung on anyway, in the firm belief that pharmaceutical companies are more likely than politicians to find a cure for cancer. But, as a long-term investment trust shareholder, it was comforting to know that selling by short-term holders would not force the fund managers to dump assets to meet redemptions.

In addition to a few household names – including Apple (AAPL.O) and GlaxoSmithKline (GSK) in which I also have direct holdings – both these investment trusts offer exposure to many companies about which I know next to nothing. Perhaps paradoxically, that is one of the real advantages of professional fund management for individual investors who know the limits of their knowledge and still hope to profit from unknown unknowns.

Full disclosure: here is a of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.

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