How the Trust responds to macro-economic factors such as the U.S. election, Covid-19 and more

There are many factors currently affecting global economies. The Covid-19 pandemic is spreading more rapidly again, with higher infection rates being reported across most countries. The results from the U.S. election are not yet final, with Trump contesting the outcome across several states. And finally, Pfizer has announced positive results for its Covid-19 vaccine candidate. The equity markets have recovered strongly after their low point in March 2020. As investment managers, navigating such volatile markets can be a complex process. Our investment strategy is twofold: we apply both a bottom up and top down approach to stock selection. The bottom up approach, being the most important, relates to the selection of the individual companies, while the top down overlay ensures that the Trust responds to macro-economic developments, for example by varying the Trust’s gearing. In the current environment, our bottom up strategy remains unchanged - our aim is to select the companies which we believe will generate the best returns for our investors. Our top down approach is currently affected by the increasing number of Covid-19 cases, and the impact that any prolonged lockdown measures will have on the economy.

With the current spread of the Covid-19 pandemic, it remains unclear how long lockdown procedures will be required and what impact the lockdown will have on the economy. With the recent positive announcement relating to Pfizer’s potential vaccine (subject to FDA approval), we are optimistic about the effects this will have on controlling the pandemic and are hoping life will go back to normal in 2021.

We expect to have to wait for definitive results on the U.S. election, which may not be determined until the beginning of 2021 when the current Republican-held Senate may or may not flip to the Democrats. The post-election political stand-still might lead to further delays in stimulus packages, creating additional uncertainty which could have a negative impact on financial markets.

With the strong long-term fundamentals of the biotech sector intact, a steady increase in the pace of innovation and the anticipated growth of the elderly population, we see the current uncertainty relating to the pandemic and the U.S. election having a short-term impact on the market. Our investment strategy remains unchanged and we view any potential new correction in the market as an opportunity to add to our portfolio of investments.

In October, the Trust’s NAV benefitted when Bristol-Myers Squibb announced its acquisition of Myokardia, a holding of the Trust, at a 61% premium. Myokardia is an American biotech company focussing on developing new treatments for diseases of the heart muscle. Their drug candidate mavacampten has shown positive results in clinical trials in hypertrophic cardiomyopathy (HCM), a disease resulting in the thickening of the heart muscle that could lead to serious effects like heart failure, stroke or death. Mergers and acquisitions are a hallmark for the biotech sector and we expect the transition of assets from early stage development companies to global development and marketing companies to continue for the foreseeable future.

Mirati, one of the Trust’s Top-10 holdings, is an American biotech company that, in October, reported positive results in a clinical trial for non-small cell lung cancer with the KRAS-mutation G12C+. Mirati and Amgen, another Top-10 holding, both have compounds in clinical stage and are leading in this field. Mirati’s drug candidate is called adagrasib and could potentially be combined with a checkpoint inhibitor like PD-L1. The mutation KRAS G12C+ is also prevalent in other types of tumours which could lead to increased market opportunities.

The Trust published its 2020 Annual Report on 02 November 2020, which can be viewed on the IBT website.

The Trust’s Annual General Meeting (AGM) will be a closed meeting, to be held on 15 December 2020. With the developments of Covid-19 unfolding, the health and safety of our Shareholders is a top priority. Given the AGM will be closed to Shareholders, we will publish an AGM Shareholder video on the Trust’s website in advance of the AGM in order to provide an overview of the performance of the Trust for the year ended 31 August 2020. Shareholders are invited to submit any questions they have on this video or the formal business of the AGM to the Company Secretary at secretarialservice@uk.bnpparibas.com.