Electric & General Investment Fund: As at 30.04.15
International / Equity Growth
Investment Manager’s Commentary
(1st April 2015 to 30th April 2015)
Equities made further progress in a month which saw a number of record highs pared back by mixed
economic data. Performance in the US in particular was muted by disappointing figures, and towards
the end of April the dollar slid in response to lacklustre GDP growth in the first quarter. In Europe,
however, in spite of on-going concerns over Greece, there were further signs that the recovery is
taking hold and coupled with the stronger euro, this resulted in a pleasing month for the Fund. During
the month bond markets weakened, the oil price strengthened and Chinese stocks rose strongly,
suggesting improved confidence in global recovery. In April Bharti Airtel was topped up following
the conclusion of the Indian spectrum auction and three new healthcare investments were made:
Ablynx, Circassia Pharmaceutical and Innate Pharma. Ablynx is a new holding which we started
with a small initial investment; Circassia and Innate are existing holdings within our European funds.
Ablynx is a Belgium based biopharmaceutical company which focuses on the development of
single-domain antibody fragments called “Nanobodies”. This platform is proprietary to Ablynx and
has the potential for application across a wide range of conditions. Currently, treatments are being
developed for Thrombotic Thrombocytopenic Purpura (TTP), Respiratory Syncytial Virus (RSV),
rheumatoid arthritis (RA) and various cancers.
“Nanobodies” are an adaptation of camelidae (camel/llama) antibodies, which are heavy chained
and smaller than conventional antibodies. This crucial characteristic provides several advantages
over light chain antibodies, such as increased resilience, the capacity to address multiple pathways
concurrently, and the ability to reach otherwise intractable targets.
Ablynx’s target markets offer substantial potential for penetration. RSV currently results in
approximately
177,000 hospitalizations and 14,000 deaths annually of people aged 65+ in the US
1
alone ; there is no existing treatment for this patient group. The market for the rheumatoid arthritis
drug is appreciably2 larger, with sales of the largest incumbent drug, Humira, totalling over $11bn
worldwide in 2013 .
The RA drug and the TTP drug have completed Phase II trials showing good efficacy. The RSV drug
has just begun Phase II testing, following successful animal testing in lambs. Caplacizumab has
already been earmarked for expedited filing in Europe in 2017, which could result in sales as early as
2018.
3
The company is in a robust financial position, with current cash of €206m . With net operational cash
burn of €34.1m, Ablynx should have sufficient reserves to last 5+ years (by which time it should see
sales from its Caplacizumab programme.)
4
We believe the current price of €9.55 significantly undervalues Ablynx’s short and long term
potential; applying our risk-weighted Discounted Cash Flow valuation, our base case price target
over a 3 year horizon is €16.50, and our blue-sky, de-risked target is €46.50.
Circassia was founded by Imperial Innovations (the commercialisation body of Imperial College) in
1998. Imperial is recognised internationally as a leading respiratory medicine centre. The company
has an innovative platform technology to protect patients from allergic reactions to common
allergens such as cat, grass, ragweed and dust mite. Compared to traditional tolerance-based
therapies that challenge the immune system with the allergen concerned, Circassia’s technology is
safer, quicker, longer lasting and more efficacious. Rather than presenting the body with the whole
allergenic protein, only that part which confers tolerance is used. As a result, there is a much
reduced risk of a severe reaction and other side effects.
The company has one product in Phase III trials for cat allergies, with results available in the first
half of 2016. In addition, two Phase IIB trials are underway for ragweed and house dust mite. Phase
III trials are planned for all products by 2017. These products are commercially attractive. In the US
there is a community of allergists who will be enthusiastic about having new products to sell. All of
Circassia’s products are injectable and require a (lucrative) visit to an allergist for administration.
The company is very well funded having raised money in 2014. Given its bright prospects, the
valuation is not cheap but there is very good upside, even with one successful product. For example,
on an un-risked basis the cat product alone could be worth £10 per share – three times the current
share price.
Innate Pharma is a biopharmaceutical company based near the University of Marseilles, which has
one of the leading medical research departments in France. The company’s expertise is in
immunopharmacology and antibody technology. It focuses on developing mechanisms for
controlling the innate immune system. This improves the ability of the natural killer cells to fight
cancer. The scientists who founded the company have been working on this since the 1990s and
their intellectual property in this area is protected by a number of patents. The company has two
products at the clinical trial stage, one of which is partnered by Bristol-Myers Squibb, the leaders in
immunotherapy. Initial trial results have been encouraging and the company has embarked on a
larger scale trial with the aim of getting a product to the market within the next couple of years.
During April Innate announced that it had struck a deal to partner another drug with Astra Zeneca.
This caused a substantial increase in the share price.
Immunotherapy has become a strong focus of attention over the last two years. Most of the current
excitement is around drugs that prevent cancer cells fooling the adaptive (antibody-based) part of
the immune system into not attacking them. Innate Pharma works on the innate immune system
which is a separate part of the body’s defence against diseased or foreign cells. Its lead drug blocks
a receptor on the natural killer cells that cancer cells use to avoid attack. While the adaptive method
has a number of drugs coming to market and patents owned by multiple companies, the innate
system has not attracted as much attention and it is dominated by 4Innate Pharma. If this approach
works, the rewards will be substantial. The current price is €15.75. Our base case price target is
around €27 with a blue sky, de-risked valuation of around €60.
The sale of Kinnevik was completed in April. The holdings in Computershare and Varian Medical
Systems were also sold having performed strongly.
Taube Hodson Stonex Partners LLP
May 2015
Sources:
1
2Nordic research, “The Future of Vaccines”, 2014 Year End Results
3PM Live, “Top 50 pharmaceutical products by global sales”, ©PMGroup Worldwide Ltd 2015
Ablynx 2014 Annual Report
4 Bloomberg as at 7/5/15
.
Discrete Annual Performance (%) 12 Months Ending
a
NAV
Morgan Stanley Capital International
World Index in Sterling
March 2015
March 2014
March 2013
March 2013
March 2011
2.98
15.29
13.98
-
-
16.80
6.28
15.05
-1.40
5.23
Note: Price is month-end mid-price. Benchmark is not total return index. Returns quoted in Sterling, net of fees
Source Bloomberg
Past performance is not a guide to the future. The value of the shares and the income from them can go down as well as up and you may not get back the full amount
originally invested.
Cumulative Performance to 30.04.15 (%)
1 Month %
3 Month %
6 Month %
YTD %
Since Inception %
NAV
-0.76%
5.49%
7.06%
6.74%
44.10%
Morgan Stanley Capital International
World Index in Sterling
-1.31%
3.61%
8.39%
5.54%
60.91%
Note: Price is month-end mid-price. Benchmark is not total return index. Returns quoted in Sterling, net of fees.
Source: Bloomberg
Past performance is not a guide to the future. The value of the shares and the income from them can go down as well as up and you may not get back the full amount
originally invested.
Electric & General Investment Fund: As at 30.04.15
International / Equity Growth
Top Ten Holdings (as at close 30.04.15)
1
TAG Immobilien AG
4.72%
2
ING Groep
2.89%
3
Schibsted ASA
2.89%
4
BNP Paraibas
5
Sky
2.33%
6
Hutchison Whampoa
2.26%
7
Intuit
2.24%
8
Mondelez Int
2.20%
9
Sumitomo Mitsui
2.14%
Golar LNG
2.14%
10
SA
2.34%
Source: THS Partners
NAV per Share Performance 12.08.11 to 30.04.15
Electric & General Investment Fund
MSCI World Index in Sterling
180.00
170.00
160.00
150.00
140.00
130.00
120.00
110.00
100.00
90.00
Source: Bloomberg
Past performance is not a guide to the future. The value of the shares and the income from them can go down as well as up and you may not
get back the full amount originally invested.
Electric & General Investment Fund: As at 30.04.15
International / Equity Growth
Sector Allocation
Health Care
3%
Technology
3%
Cash & Fixed Interest
5%
Energy
4%
Financials
32%
Materials
6%
Telecommunications
7%
Industrials
16%
Consumer Staples
11%
Consumer
Discretionary
13%
Source: MSCI Sectors
Geographical Allocation
Asia/Pacific Ex Japan
5%
Cash & Fixed Interest
5%
Europe Ex UK
47%
Japan
6%
United Kingdom
15%
North America
22%
Source: THS Partners
Electric & General Investment Fund: As at 30.04.15
International / Equity Growth
Currency Weightings (Including Cash & Hedge)
Compared to MSCI World as at 30.04.15
Australian Dollar
British Pound
Canadian Dollar
Danish Krone
Euro
Hong Kong Dollar
Indian Rupee
Israeli Shekel
Japanese Yen
New Zealand Dollar
Norwegian Krone
Singapore Dollar
Swedish Krona
Swiss Franc
U.S. Dollar
Electric & General (%)
2.3%
20.3%
1.2%
0.0%
39.7%
2.2%
1.3%
0.0%
5.5%
0.0%
3.0%
0.0%
0.7%
3.1%
20.4%
Index: MSCI World (%)
2.8%
8.0%
3.8%
0.7%
11.9%
1.3%
0.0%
0.2%
8.7%
0.1%
0.3%
0.6%
1.2%
3.6%
56.8%
Source: THS Partners
E&G Details by Currency (Including Cash & Hedge)
Compared to MSCI World as at 30.04.15
60%
Percentage of E&G / Index
50%
40%
30%
E&G Weight
Index Weight
20%
10%
0%
Source: THS Partners
Electric & General Investment Fund: As at 30.04.15
International / Equity Growth
Investment Objective
The Company's investment objective is to seek to achieve long-term capital growth with some potential for
income. To achieve the investment objective, the Company’s investment policy is to invest principally in a
portfolio of global equities, and may also invest in other transferable securities, bonds, units and/or shares in
collective investment schemes, warrants, money market instruments, cash, near cash and deposits. There is no
limit to which the Company can be invested in each sector or asset type, nor is there any particular geographic
focus. The Company may borrow and may enter into underwriting arrangements. It is the ACD’s intention that
derivatives and forward currency transactions will only be used for the purposes of efficient portfolio management,
including hedging, as defined by the Regulations. From time to time the liquidity of the Company may be
increased substantially if judged to be in the interests of investors.
Charges
Basic Management Fee: 0.3% of net assets per annum.
Performance Fee: 10% of the outperformance versus the MSCI World Index in Sterling over the relevant
performance period (maximum of 0.7% in a period of increase and 0.3% in a period of decrease of net assets).
Fund Details
Total Gross Assets:
£ 98,020,534,84 (As at 30.04.15)
Dealing:
Daily
NAV Frequency:
Daily
Legal Status:
Open Ended Investment Company
IMA Sector:
Global
Dividends:
February & August
Investment Manager:
Taube Hodson Stonex Partners LLP
Authorised Corporate Director:
Carvetian Capital Management Limited
Wrapped Products
The shares of Electric & General Investment Fund (“Electric & General”) are offered within the Alliance Trust
Savings Scheme and ISA. Further details can be obtained from the ‘How to Save’ section of the Electric &
General website on www.electricandgeneral.com or by calling the Investor Services Helpline on 0845 850 0255.
Important Information
The prices of shares in open ended investment companies and income received from them can go down as well as
up and investors may not get back the full amount invested. Past performance is no guarantee of future
performance. Changes in the rates of currency exchanges may have an adverse effect on the value or price of the
shares. Investments in a currency other than your own currency will be subject to movements in foreign exchange
rates. Reference to any specific securities should not be construed as a recommendation to buy or sell these
securities but is included for the purposes of illustration only. Investors should also note that the views expressed
may no longer be current and may have already been acted upon. The Fund may invest in emerging markets which
tend to be more volatile than more established stock markets and the value of your investment could move sharply
up or down. If you have any questions about the suitability of this investment for your portfolio, you should
contact an independent financial adviser. Nothing in this factsheet should be construed as advice nor be considered
an offer or solicitation to deal in investments. Issued by Taube Hodson Stonex Partners LLP, which is authorised
and regulated by the Financial Conduct Authority, (Firm No 480219). Registered office: Cassini House, 1st Floor,
57-59 St. James’s Street, London, SW1A 1LD (OC333502).