A return of over 41% in 12 months for any investment is pretty great. But I think it’s particularly note-worthy if we’re talking about a fund rather than a single stock. After all, the good ol’ FTSE 100 index has managed ‘just’ 10% in the same period. But not I’m considering selling my stake. In fact, I’ve been buying more for my Stocks and Shares ISA.
Go small
The investment in question is Biotech Growth Trust (LSE: BIOG).
As it sounds, this looks to own a portfolio of stocks that use living organisms and molecular biology to make products that can help health, agriculture, and the environment.
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A key point is that the businesses favoured here are not yet sustainably profitable and often need funding for clinical trials. This means the trust has a big weighting towards small-cap stocks (market cap below $2bn). The majority of the holdings are also based in the US, even though the management team is free to select them from anywhere.
Why I’ve bought more
The first reason I’ve bought more is the current momentum I’ve already mentioned. After a few tough years, it seems like we’re seeing a recovery in the sentiment towards biotech minnows. Much of this is probably down to the interest rate pivot we’ve seen in recent months, both in the UK and the US.
Despite such a decent run, the sort of stocks that the Biotech Growth Trust likes to own are still cheap, both relative to the titans of the sector and the S&P 500. I’m crossing my fingers that that this discount will reduce from here. I also think mergers and acquisition activity could increase.
My other main reason is that the outlook for biotech is surely only positive. Rapidly evolving technology will hopefully give rise to cures for our biggest diseases as the years pass. As well as being wonderful for humanity, it could also create a lovely pot of money for investors in the process.
Big risks
While I’m an optimist on biotech in general, I also know it could be a roller-coaster ride in the interim. Clinical trials are often unsuccessful. Even the most promising treatments take time to be approved by regulators.
This all costs a lot of money and helps to explain why the trust fell roughly 50% in value between 2021 and the beginning of 2024 as inflation raged.
That sort of volatility is exactly why I want to own a fund over single-company stocks. I’m confident those running it know far more about this space — and the science behind it — than I ever will. The snag is that fees will be due regardless of performance.
Not done yet
Never in a million years would I consider going all-in on this sector. But I do believe that having a large majority of my wealth in established, stable companies permits me to take on more risk with what’s left over.
This approach — known as ‘barbell investing’ — is why I hold the Biotech Growth Trust. It also allows me to sleep at night.
What happens if/when the ‘Trump boost’ starts to wane is debateable. But I do plan to hold for a very long time.
My most recent purchase probably won’t be my last.
