US Edition
This column is sceptical of forecasts. After all, no human being can accurately or consistently predict the future.
Moreover, forecasts regarding company earnings and the economy’s future growth rate, which are often relied on by the investment community when it apportions capital, are frequently subject to change.
It is also difficult to know which forecasts to believe. The IMF, for example, currently thinks the world economy’s growth rate will be 3pc this year and 2.9pc next. The OECD says the global economy’s rate of expansion will decline from 3pc this year to 2.7pc next year.
Demographic changes, though, are an entirely different matter. Although nobody can guarantee that the world’s population will continue to grow and age over the coming decades, Questor believes it is extremely likely on the basis of longstanding trends.
Indeed, according to the UN, the world’s population is forecast to rise from 8 billion to 9.7 billion by 2050. Over the same period, it expects the number of people aged 65 or over to more than double to 1.6bn.
Companies that stand to benefit from demographic changes, notably healthcare businesses such as those held in the Worldwide Healthcare Trust, are likely to experience improving operating conditions. This is good news for our Wealth Preserver portfolio, since we added the trust to it in October 2021.
In fact, the World Health Organization expects non-communicable diseases – those than cannot be transferred between people, such as cancer, diabetes and heart disease – to account for 86pc of the forecast 90m annual global deaths by 2050 if current trends continue. This represents an increase of 90pc in absolute terms since 2019 levels and is therefore a significant growth opportunity for the trust’s major holdings such as Novo Nordisk and AstraZeneca.
The trust’s largest positions include other familiar names such as Roche, Sanofi and Eli Lilly in a relatively diverse portfolio. The top 10 holdings account for 43pc of total assets, while there are 64 large, medium-sized and smaller stocks in total. They include unquoted holdings that account for 6pc of the portfolio.
Unsurprisingly, North American companies dominate the trust’s holdings. They make up 65pc of assets, while stocks listed in Europe, China, Japan and India account for the remainder. The company also holds a mixture of pharmaceutical, biotechnology, healthcare provision and healthcare equipment businesses. This wide diversification means that the trust is a simple way for British investors to gain access to a broad range of companies, sub-sectors and regions.
Although the trust has thus far produced a disappointing return since its addition to our portfolio around two years ago, falling by 15pc and therefore dramatically failing to keep pace with an elevated rate of inflation, it offers significant long-term growth potential.
A substantial proportion of its capital loss is due to a widening of its discount to net asset value. At the time of notional purchase its discount was 2pc. Today it stands at around 9pc. This suggests it has become increasingly undervalued as investor sentiment has weakened towards stock markets amid the current era of high inflation and interest rate rises.
Furthermore, the company’s gearing ratio of around 9pc means its decline, and share price volatility, have been magnified. Given that its holdings are likely to experience an improving operating environment, in terms of both the economy’s performance and the demand for their products, the gearing should benefit the trust’s performance over the long run. And since this column is very accepting of short-term volatility, it views gearing as an ally for undervalued trusts.
In view of the fact that the trust’s aim is to deliver long-term share price growth, rather than a high or reliable income, it is somewhat unsurprising that its dividend yield currently stands at just 1pc. Having paid dividends amounting to around 2pc of our initial purchase price, it is clear that income seekers should continue to look elsewhere.
However, with a large discount to net asset value, a wide range of high-quality holdings and gearing that provides a potential boost to future growth, Worldwide Healthcare has long-term appeal for growth investors. Although it has disappointed since its addition to our portfolio, and forecasts can never be fully relied on, the future for its portfolio of stocks remains upbeat as demographic changes provide an improving operating environment. Hold.
Questor says: hold
Ticker: WWH
Share price at close: 306p
Read the latest Questor column on telegraph.co.uk every Monday, Tuesday, Wednesday, Thursday and Friday from 6am
Read Questor’s rules of investment before you follow our tips