One of the UK’s most influential stock-pickers has warned that some of his bets on biotech stocks will turn sour – but said it is the price to pay for the chance of making top returns.
Tom Slater, co-manager of Scottish Mortgage, one of Britain’s most popular investment trusts, admitted biotech is risky, pointing out that some of his picks have become worthless.
However, he said these only made up a small part of the £20.4billion investment trust, and that failed investments are a risk worth taking for potential winners.
Leadership: One of the trust’s holdings is American medical company Clover Health, where Chelsea Clinton, the daughter of former US President Bill Clinton, is a director
He told The Mail on Sunday: ‘We try to be very upfront that the price of getting the big winners is the ones we inevitably get wrong.
‘We’ve generally tried to go for companies we think are a very big opportunity and accepted upfront that not all of those win.’
Led by outgoing fund manager James Anderson, Scottish Mortgage is one of the most successful investment trusts in Britain. Shares in the trust have rocketed over the past decade – rising 899.4 per cent.
The trust, launched in 1909 and managed by the fund group Baillie Gifford, has been boosted by technology stocks over the past few years, with its top investments including US electric car firm Tesla and online retailer Amazon.
Recently, Scottish Mortgage has been investing more in biotech and pharmaceuticals, where a handful of its stocks have seen values plunge or be wiped out.
Some advisers are raising questions over its future performance and have drawn parallels with some of the stocks held by fund manager Neil Woodford, whose £3.5billion fund collapsed in 2019.
Slater used his holding in Denali Therapeutics, whose share price has recently fallen, to explain the difference between his picks and those of Woodford.
He said that compared with some of the firms backed by Woodford, Denali is ‘a much larger company with a much larger balance sheet, that is not dependent on a single drug candidate.’
Slater added: ‘We’re not investing in start-ups. We’re investing in companies that have genuinely gone through several financing rounds. And the other distinction is the global footprint of what we can look for.’
One of the trust’s holdings is American medical company Clover Health, where Chelsea Clinton, the daughter of former US President Bill Clinton, is a director.
Clover faced criticism earlier this year after short-seller Hindenburg Research said it had not disclosed it was under investigation by the US Department of Justice.
The US Securities and Exchange Commission also scrutinised the firm after the short-selling attack. The shares dropped from $22 (£16) in June to $9. However, that company represents just 0.1 per cent of the trust’s investments.
Another Scottish Mortgage healthcare stock, Zymergen, lost 80 per cent of its value last month after warning it no longer expects to generate product revenue this year.
And Intarcia Therapeutics, a US firm that has been unable to secure approval from the authorities for its diabetes treatment, had its value written down to zero.
Slater said: ‘Intarcia is an example where there was a really big opportunity that they were going after. They didn’t get the approval from the FDA during the phase three trials. And eventually they couldn’t fund further investment.’
However, he said any losses will have been far outstripped by some of his top picks, such as Illumina, whose shares soared from 70 cents – in May 2011 when the trust bought the stock – to $461.
‘The losses on the ones that didn’t work are a rounding error compared with that return,’ he added.