Biotech is risky, but we are not Woodford, the head of the Scottish Mortgage Trust points out, as some of his tips have become worthless
- Tom Slater admits that some of his tips have become worthless
- One of its health stocks, Zymergen, lost 80% of its value in the past month
- But he said that this is only a small part of the $ 20.4 billion
- Holdings include Clover Health, of which Chelsea Clinton is a director
One of the UK’s most influential stock pickers has warned that some of his bets on biotech stocks are getting sour – but he said that’s the price to pay for the opportunity for prime returns.
Tom Slater, co-manager of Scottish mortgage, one of the UK’s most popular mutual funds, admitted that biotechnology was risky and noted that some of its tips have become worthless.
However, he said these were only a small fraction of the £ 20.4 billion mutual fund and that failed investments were a risk to potential winners.
One of the trust’s holdings is the American medical company Clover Health, of which Chelsea Clinton, the daughter of former US President Bill Clinton, is the director
He told The Mail on Sunday: “We try to be very open that the big winners prize is the one we inevitably get wrong.
“We have generally tried to choose companies that we believe are a very big opportunity and have accepted in advance that not all of them will win.”
Under the direction of outgoing fund manager James Anderson, Scottish Mortgage is one of the UK’s most successful mutual funds. The trust’s shares have soared over the past decade – 899.4 percent.
Founded in 1909 and managed by the Baillie Gifford fund group, the trust has been bolstered in recent years by technology stocks with top investments such as US electric car maker Tesla and online retailer Amazon.
Recently, Scottish Mortgage has invested more in biotechnology and pharmaceuticals, where the values of a handful of its stocks have slumped or wiped out.
Some advisers raise questions about future performance and have drawn parallels with some of the stocks held by fund manager Neil Woodford, whose £ 3.5 billion collapsed in 2019.
Slater used his stake in Denali Therapeutics, whose share price has recently fallen, to explain the difference between his recommendations and Woodford’s.
He said Denali is “a much larger company with a much larger balance sheet that is not dependent on a single drug candidate,” compared to some of the Woodford-backed firms.
Slater added, “We don’t invest in startups. We invest in companies that have actually gone through multiple funding rounds. And the other distinction is the global footprint of what we can look for. ‘
The trust’s holdings include the American medical company Clover Health, of which Chelsea Clinton, the daughter of former US President Bill Clinton, is a director.
Clover came under fire earlier this year after short seller Hindenburg Research said he hadn’t announced that the US Department of Justice was under investigation.
The US Securities and Exchange Commission has also scrutinized the company after the short sale attack. Shares fell to $ 9 from $ 22 (£ 16) in June. However, this company represents only 0.1 percent of the trust’s investments.
Zymergen, another Scottish mortgage health stock, lost 80 percent of its value last month after warning it would be out of product sales this year.
And Intarcia Therapeutics, a US company that failed to get regulatory approval for its diabetes treatment, was written down to zero.
Slater said, “Intarcia is an example of a really big opportunity that they were pursuing. They did not get approval from the FDA during the Phase 3 trials. And finally, they couldn’t fund any further investments. ‘
However, he said any losses would be far exceeded by some of his top picks like Illumina, whose shares rose from 70 cents – in May 2011 when the Trust bought the stock – to $ 461.
“The losses on those that didn’t work are a rounding error compared to that rate of return,” he added.