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).
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