‘Investors in med-tech stocks will get destroyed’

Healthcare companies have disappointed versus global markets, but Paul Major tells Marianna Hunt where the opportunities are

Governments have spent billions on attempting to combat coronavirus. But while somehealthcare companies have benefited enormously from the pandemic, others relying on day-to-day medical services that have been put on hold have suffered.

Over the past year the MSCI World Health Care index has returned less than the global stock market average, rising just 6.5pc versus 10.4pc.

The £ 907m BB Healthcare Trust invests in the industry by concentrating investors’ money into a small portfolio of about 30 stocks it believes will lead their peers. In the past 12 months it did just that, returning 30pc.

Paul Major, one of two managers running the investment trust, tells Telegraph Money about the dangers of investing in healthcare for the dividends, and why he is not expecting a market recovery before Christmas.

WHO IS THE FUND FOR? It’s for people who want to own the growing healthcare sector but don’t want to be invested in risky, earlystage companies.

It’s a defensive fund, as no matter whether the economy is growing or contracting, people will always get sick.

HOW DO YOU PICK STOCKS? There are three key things we look for in a company: whether the product or service it provides improves clinical outcomes, reduces the cost of care, or enables caregivers to make better decisions.

If a stock meets one of these criteria, we then map out where we think its share price will go and whether its current valuation makes it attractive.

MORE THAN HALF OF THE FUND IS IN 10 STOCKS: IS THAT NOT RISKY? We manage this by avoiding earlystage companies without proven results, as well as private firms that could be hard to sell. We also don’t generally invest in companies that base their business on just one product or service.

We manage short-term risk, such as elections, by changing how much we own of each stock, but also don’t invest solely based on short-term trends. For example, we didn’t invest in any firms simply because they were working on a Covid-19 vaccine.

PRICES FOR SOME HEALTHCARE STOCKS HAVE RISEN RAPIDLY. DOES THAT CONCERN YOU? DIY investors have become more of a force in markets recently. They like investing in businesses they understand, such as health tech firms that make gadgets or wearable devices to monitor one’s health.

Prices in this area have been pushed up and some of the valuations are nuts. If something goes wrong with those companies, investors will get destroyed.

HOW LONG WILL IT TAKE FOR MARKETS TO RECOVER? We think people have been too hasty in thinking things will get back to normal.

We don’t know how long these vaccines last, so wearing masks and social distancing will likely be around for a lot longer. Christmas this year is going to look more like 2020 than 2019.

Anticipating this, last summer we moved the portfolio into companies that had very predictable revenues and that focus on delivering critical care. Even when the NHS opens up to other patients, people who are most in need will be prioritised.

We’ve remained in that defensive position for a while.

WHY IS INVESTING FOR THE DIVIDENDS DANGEROUS? Large pharmaceutical stocks often pay out attractive dividends but this leaves them less money to buy up other firms with innovative ideas.

These big companies struggle to generate enough innovation themselves, so this may not be sustainable. Once you commit to a dividend, people will expect you to continue paying it. This creates a real tension. We won’t invest in a company specifically because it pays a dividend.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS? Pacific Biosciences, which specialises in gene sequencing, was our best. We made five or six times our money when we sold.

Worst was NMC Health, a private healthcare provider in the Middle East. It was accused of fraud and went into administration last year. Our investment went to zero.

HOW ARE YOU PAID? I am paid via shares in the trust based on its performance over three years.

WHAT WOULD YOU HAVE BEEN IF YOU WEREN’T A FUND MANAGER? I was originally a scientist so probably would have stayed in that.

QMy mother has owned a rustic oil-heated farmhouse since 1982. She had an old boiler replaced with a new Worcester Bosch unit in late 2016, but it proved somewhat unreliable. Worcester Bosch engineers were called out. In February 2018, the oil pump failed and was replaced under warranty. Unfortunately, there was an issue with the isolation valve that caused it to leak. This part has since been recalled as a safety precaution. Over the next three weeks, hundreds of litres of heating oil leaked under the farmhouse. The stench was horrific. Worcester Bosch engineers fixed the issue and an area manager offered to pay for the “loss of oil and any inconvenience caused”.

Following the oil leak, my mother went to the doctor complaining of tiredness, stinging eyes, confusion, and a metallic taste in her mouth. Then her cat was euthanised due to sudden heart issues. And then my mother herself had a series of heart attacks. After this we were told by our insurer, Axa, and the Environment Agency that the house was thick with poisonous fumes and it was unsafe for her to live there. It signed the site off as unsafe.

It has been suggested to me by a toxicologist that the pattern in which my mother’s cat suffered a heart attack just weeks before her suggests both could have been caused by the poisonous kerosene vapours rising slowly from the ground. High exposure can cause heart and lung failure. Doctors and the cat’s vet have not directly attributed the heart attacks to the oil leak, but a report I had done by the toxicologist stated that the recorded symptoms fit with exposure to kerosene vapours.

Thankfully my mother recovered, but she is frail and has needed care, which I have continually provided. We were forced out of her home and initially offered unsuitable accommodation. So I rented a caravan, where we lived for several months. Now we are in a more suitable home paid for by Axa. Pretty much all our belongings are in storage. Axa has drafted in oil spill experts to try to resolve the issue, but the house is still a complete mess.

Meanwhile, Worcester Bosch is refusing to admit any liability, but it is happy to discuss a “without prejudice” settlement with Axa when the true cost of fixing the house is known. I feel my mother should receive compensation for personal injury, but Worcester Bosch refuses to discuss this. We are running out of time to lodge a personal injury claim via the courts, as it is coming up to three years since the incident took place. This claim would need to be put through at the same time as the Axa insurance claim for the house, which is moving at a snail’s pace. I am so worried she will run out of time. It must be done by March 2021.

Since the oil leak my mother has aged dramatically. Previously she was in excellent health for her age. I feel Worcester Bosch should be accountable for a faulty boiler valve it sold and fitted. A “without prejudice” settlement on the property to cover damages is not enough. This company has destroyed the past three years of my mother’s limited life and I feel she should be properly compensated. – Anon

AIt is mind- blowing how this issue with a tiny boiler valve has wreaked havoc on such a huge scale. Your mother is elderly, sick and having to cope away from her own home, which to this day remains an uninhabitable building site. You sent me a photograph of your mother before the incident, depicting a vivacious woman in rude health for her age. You also sent me a photo of her after the incident. The deterioration was shocking.

‘This company has destroyed the past three years of my mother’s limited life’

I quickly realised that your mother was caught up in a confusing web of corporate giants, all working to solve her claim, but getting nowhere fast. There was Worcester Bosch and its insurer Allianz, your home insurer Axa and its solicitor and a loss adjuster, on top of other organisations including the Environment Agency and toxicology experts. Your mother was caught in a catch-22: she had been told that the personal injury claim needed to be lodged at the same time as the Axa claim for the house. But this was delayed because the works, which were being advised by the Environment Agency, were unfinished. The March deadline for lodging the personal injury claim was approaching, yet it was feeling more and more like Groundhog Day.

Instead of getting bogged down in the detail, I decided to strip away the complexity and focus on the case’s bare bones. This almighty mess, apparently caused by Worcester Bosch and its contractors alone, needed cleaning up once and for all. Yet it wasn’t even prepared to admit liability for the oil leak, let alone pay to put things right. Instead it was choosing to hide behind its insurer. This struck me as a cop-out that needed urgently addressing. Worcester Bosch is a large company with deep pockets and a trustworthy reputation. So why wouldn’t it cough up and let your mother move on from this purgatory?

I tried for weeks to contact Worcester Bosch to no avail, making repeated efforts to convey the seriousness of your mother’s case. Eventually I was able to establish contact via its parent company, Bosch. Apparently all the emails I had sent had not been received, despite them being sent to the correct address.

I asked Worcester Bosch to admit liability for the oil leak. But Worcester Bosch declined, saying everything needed to go through its insurer. This was the “proper” process, it said. I told it I didn’t give a monkey’s about the “process”. Desperate times called for desperate measures, and things don’t get much worse than the situation in which your mother found herself.

For months I tried to find a way to help your mother but, like you, I felt I was going around in circles with the various parties involved. The plan was for the house claim to pay for everything including the rebuild, environmental clean- up costs, accommodation and storage, and professional fees.

But it was taking too long, and I feared your mother would be dead by the time she could move back in. So I suggested that Axa should consider letting you sell your mother’s £425,000 house at auction for the best price it could fetch in its current state, giving her some capital with which to buy a permanent home. Axa said it thought the cost of the rebuild would be around £ 175,000, so if you could sell it for £250,000 then it would be happy to settle for the difference. You were delighted to have this option and started exploring a potential sale, but a reasonable offer hasn’t materialised.

Meanwhile, as it wasn’t coming up with any ideas itself, I suggested two things that Worcester Bosch could do to resolve the case: buy your mother’s house for the full £425,000 and take on all the liability, and pay her a reasonable out of court settlement for personal injury. Worcester Bosch did neither and continued to hide behind Allianz.

A spokesman said: “We cannot be criticised for our handling of either the property damage claim or the injury claim as they are said to be large claims and neither have been formally presented to us with all the usual supporting evidence.”

Happily Axa, which was far more responsive to my requests, convinced its solicitor to take on your personal injury claim alongside the insurance claim for the house repairs. Last week both claims were finally lodged with the court, and you now have four months to compile evidence. Axa has also gone above and beyond and agreed to pay for various formal reports you will need to supply.

Although I have helped progress your mother’s case, I regret that I have not been able to quickly extract what I feel is fair from Worcester Bosch. Clearly the right resolution is going to take time, which your mother may or may not have. However, with you, her determined son, on the case, it is far from over. I know you will see it through until the end. You have agreed to keep me involved and I will eagerly wait for updates from you. Until then, I am here if you need anything.