CT Healthcare Trust (LSE:CTHT) — Annual General Meeting

0:01 Good afternoon, ladies and gentlemen, and welcome to the broadcast of the BB Healthcare Trust PLC Annual General Meeting. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investment company dashboard, and you'll be notified once they're

0:31 ready for your review. I'd also like to remind you this presentation is being recorded. I'd now like to hand you over to Randy Gruel, chairman of BB Healthcare TRUST PLC. Good afternoon. Hello, ladies and gentlemen. Welcome. It's just after 12:00, and this is the appointed time for holding the annual general meeting of BB Healthcare Trust PLC, convened by the notice to meeting of shareholders dated 02/28/2001. I'm the chairman, and I'm joined today by the other members of the board, Paul Southgate, professor Stebing, Joe Dixon, and professor Tony Young. In addition, I have Brett and, Paul... Brett Dark and Paul Major, who are the investment managers.

1:17 I'll be acting as the chair of the meeting and presenting the proxy votes which have been submitted in advance. I appreciate this meeting for the second year in a row is not in person, but that's because our highest priority is safety of everyone involved, particularly with COVID nineteen. And this was the reason we requested no one attend in person, and instead we held the meeting virtually. As mentioned in the announcement of the fourteenth of, April, after the formal part of the meeting completes, our investment managers will be available to do a q and a. We will start with the pre submitted questions. So in accordance with the company's articles, I will chair the meeting, and we'll start with the proxy votes.

2:09 So I'm going to turn, on some slides with the, votes. So if we turn to the different resolutions, I can advise that I've been appointed as proxy for a 198,000,000 votes, or at least 89 of the votes have been cast in favor of all the resolutions. I should remind you that the first set of resolutions, so that's resolutions one to 12, are ordinary resolutions, so require 50% approval of the votes cast in favor. The last three resolutions are special resolutions, so require 75% of the votes being cast in favor.

2:58 So resolution one was to receive the annual report and accounts for the year ending November 30 with reports of the directors and the auditors here... Herein, both for this and for the following resolutions. I won't read the actual numbers because they're on the screen in front of you, but confirm that the vote has been in favor as you can see on the screen. So that resolution has been passed as an ordinary resolution. The second resolution was to accept the director's remuneration implementation report. And again, as you can see, it has been passed in favor. The third resolution was the director's remuneration policy report included in the annual general meeting and again in favor.

3:46 The fourth was to vote for myself as a director of the meet... Of the company, and you can see it's been in favor at around 89% in favor in this case. The next one was to reelect Joseph Dixon as director of the company and, again, clearly in favor. Next was Justin Stebing, same, again, in favor. Next, Paul Southgate. Again, you can see the numbers, and again, it's a carried ordinary resolution. Next was Tony Young as director of the company, and again, in favor as carried as an ordinary resolution. Number nine was to reappoint Ernest and Young as auditors to the company, and again, carried in favor.

4:37 Resolution 10 was to fix the remuneration of the auditors until the conclusion of the next annual general meeting and was carried in favor. Resolution 11 was to approve a final dividend of 2.5p per ordinary share for the year ending 11/30/2020. And, again, it's been carried in favor. Resolution 12 was to give authority to the board to allocate new shares, and it was carried in favor. As I said earlier, resolution 13 onwards are special resolutions, so requiring 75%. And this resolution was to allocate to allot new shares or sell treasury shares free from preemption rights and was carried in favor.

5:27 Resolution 14 was to allow the company to repurchase its own shares. I should remind people that we are... Listeners that we only repurchase at a discount to NAV, and we haven't had to do that up to date since the founding of the company. But nevertheless, we seek this resolution every time, and it was carried in favor.

5:49 And resolution 15 was to authorize calling general meetings other than the annual general meeting at fourteen days notice, and it was carried in favor. Hence, all the resolutions, both the ordinary and the special resolutions, have reached their required threshold and therefore have all been carried in favor. So that concludes the formal part of the business of the annual general meeting, and I thank you all for attending. Now we will go on to question and answer where both the board and the investment manager will be available, but I actually suspect most of the questions will be targeted towards the investment manager. I remind you all, you can submit questions in the chat function, but I will start with the pre submitted questions.

6:40 The first question is a slightly long one, but I'll read it out in full and refer to the team. So the first question starts by thanking the management team for a outstanding performance since the trust started and goes on to say, as one who urges his children to buy only cheap index trackers because you can't beat the market, it's virtually impossible to pick a success... Continually successful fund. You've somewhat embarrassed me. Thanks for that. He then suggest... Asks whether we consider intrinsic value and refers to the letters of Berkshire... Warren Buffett and Berkshire Hathaway. And then asks whether we have a view on the intrinsic value of our various holdings in relation to NAV.

7:29 Now the first part of that regarding Warren Buffett, I should say, actually, I'm a fan of his, and I've actually even brought along one of my books, Warren Buffett. But I will now pass on to the team... To Paul and, Brett to answer views on, the NAV and views on intrinsic value.

7:52 Thank you, Randy, and, good afternoon, everybody. It's it's a pleasure for us to have the opportunity to take some questions from investors. And, obviously, apologies that we can't be making a presentation in person for all the reasons that you'll be very familiar with. With regard to, you you know, intrinsic value and really the concept of of of how we think about these things. I mean, there's lots of different, ways of thinking about the fundamental value of investments. But, clearly, we are driven in the decisions that we make by the belief that everything we are investing in is undervalued. Because if if we didn't fundamentally believe that to be the case and there wasn't an opportunity for that valuation to to crystallize in a reasonable period of time, then obviously, couldn't make money for our shareholders. So, we generally try and target...

8:39 When we're thinking about what we do, we generally target annualized returns of 15%, and we generally think about holding periods of a minimum of three years. So what we're looking for are businesses that we believe are fundamentally undervalued at the point that we invest in them, but also have the opportunity to grow that intrinsic value consistently over a reasonable holding period so that year on year we can make returns. We're not really in the business of identifying companies that are fundamentally cheap in the hope that we can see some sort of short term revaluation and then we move on to something else. We are we are looking for a combination of of undervaluation at the time of entry, but also with that opportunity to to grow over time and deliver sustained returns for our investors. And that's really a a very fundamental part of the approach that Brett and I take when when selecting investments.

9:31 Great.

9:34 Should we go on to the next question? It says your largest sector holding was Focus Therapeutics. You decreased that, and you're holding higher cash levels. Should we read this as being heightened caution currently?

9:51 Thank you for the for the question. I I think this is sort of more reflective of how we felt in the second half of last year. So, obviously, the pandemic certainly in in Western Europe and The US broke March, April time frame onwards, And the stock market had a significant correction in March and then banked very, very aggressively and quickly through April, May, June, and and and q three and q four last year. At various points along that journey in the second half of last year, we had varying levels of visibility around vaccinations, whether they would, you know, whether they would even work or not work, who was going to develop them. So there's huge uncertainties. And also in the second half, we had the US presidential election, and we also had, obviously, Brexit to to navigate. So we built up significant cash in that second half just because of these unprecedented uncertainties that we were facing.

10:46 Now in the first few months of the year, for those of you who... If you follow the fact sheets, you'll see that as we have got clarity around The US political situation, Brexit, obviously, the vaccination rollouts and and and matters along along those lines. We've obviously deployed significant amounts of that excess cash. We're still running a modest net cash position, but I think the the the sort of heightened period of uncertainty is behind us. So those 10% cash levels that we were touching on the on the sort of early stages of this year, turn of the year, I I think, are now behind us. Great. Next question is, if less budget were needed to address the global pandemic, would you expect that to have a positive effect on the companies you invest in? I guess we could also widen this into terms of, what your views are as we come out of the pandemic.

11:45 Sure. Let... Let's let's answer this question with a with a little bit of background. So so, obviously, we are we are living in very unusual times. Hopefully, not for too much longer, but but certainly the last eighteen months have been very, very unusual in every, business and and and part of human life. If we think about health care as a business, because like everything it is, ultimately a business and a service, and we go back to to the world as it was in 2019, the reality is about 85% of the value in health care is in the the the the routine interactions and the planned surgical procedure. Know, thankfully, accidents are very rare things. And and most of of of what we deal with is is chronic diseases resulting from from from age and and really managing routine interactions where where the patient gets to have some degree of saying, you know, when they have their their hip done or their knee done or their cataract or whatever. And and, you know, there is that bit that's emergencies and things like cancer where you have to act very, very quickly, and and that makes up a much smaller proportion of the overall pie.

12:50 So what's happened with COVID is necessarily that the health care system has had to focus on, keeping capacity, aside for for for the potential that people were going to fall into respiratory distress is how to reduce capacity to, allow for temporal and and and physical spacing of patients and and and infection controls so that the capacity of the system is significantly lower than it should be.

13:17 And until the pandemic is behind us, capacity can't go back to where it was. So so simply put, if you look at the system, health care is not able to operate at full capacity right now. And, because of that, the majority of our companies have been adversely affected. So so in a world where there wasn't a pandemic or the pandemic was in a balance at a much faster rate, health care would be more normal, and our job, quite honestly, would be a lot easier. So so so I think simply put, if if less money were being spent

13:47 on the pandemic, it would mean there was less of a pandemic, and that would be good. But on the other hand, if if if you come back to the fundamental philosophy of what BB Health Care is all about, you know, what drives our investment process is our view that the healthcare system could be better, and the tools to make it so are available to invest in. And and and this is really to do with the fact that the demographics of the world have changed and technology enables all sorts of new clever ways to to to to do things better than we used to do. That underinvestment in health care that that that is really prevalent across the the the Westworld, that realization that other ways of doing things are available, think, has really been thrown into sharp relief by the pandemic. You know, every country in the world has struggled to cope with this because there wasn't excess capacity.

14:35 And, every physician in the world... And, you know, we have two eminent physicians on our board, and they've talked about this extensively. People have had to, learn on the fly how to deal with this sudden increase in capacity and deal with a disease that they've they've not had to deal with before. And the health care system has learned from that. And and, you you know, there is perhaps a newfound willingness to be a bit bolder in in in experimenting with the the the way that patient care is delivered. So to the extent that one can talk about positives from something that's been so globally disruptive and on a personal level for many people, very distressing. I I hope that that spirit of innovation, that willingness to to be more flexible in the approach will persist beyond the end of the pandemic.

15:23 And the fact that the the world has realized everybody, every taxpayer, every voter has realized that we've been under investing in health care, that can be a tailwind for us as well. So it's a very long, answer to a very short question, but I think what will come out of this in aggregate is positive for for investment strategies like ours in the long term. But in the short term, clearly, our job would be a lot easier, and I suspect the returns would be better if we were dealing with a more normal and more predictable environment. Okay. The next question is, with the Biden presidency, are you expecting any impact on drug pricing going forward or other legislative impact on the health care sector?

16:11 I I think our our central sort of... Whenever we do modeling on on on therapeutics companies, when we're starting to talk about drug pricing, it's always deflationary. You know, we we we never model companies expecting inflation or, you know, flat pricing is sort of at best if you can improve clinical outcomes and you can show data to support that. So when we are... When we model, we are always modeling sort of deflationary pricing going forward in terms of drug pricing. With regards to what can be done on the legislative front to address pricing in The US, we are still awaiting president Biden's Biden's part two of his, plan. That is the area where he is going to lay out his initiatives around tackling drug pricing. All I think we can say at this stage is Republican presidents have tried it. Democratic presidents have tried it. It's a very, very thorny, tricky issue to make meaningful headway in. I think our central sort of thought process is if there is any initiatives, they will be progressive and piecemeal.

17:17 We're not expecting a big draconian onslaught that can actually make it through, you know, both both sort of houses in in in The US. So we we we do see some legislative change coming, but we need to see the detail going forward. But in terms of when Paul was coming talking about answering the first question about when we do our modeling and our valuation, we already feel we properly reflect that kind of risk in in terms of the companies we invest in. The other area which is often discussed in terms of legislative impact, in the health care sector is the managed care sector. For those who aren't familiar, that is our private health insurers. It's a quite a significant part of the MSCI World Health Care Index predominantly focused on on The US market.

18:06 Again, here, over the past sort of two years, there have been various ideas floated ranging from completely outlawing private insurance up to far more realistic options where giving people more choice about their their their enrollment into private health care as they go into the seniors. We think president Biden will be far more on the benign end of the curve. He's often talked about this public option, which would allow people who normally in in The United States, when you become a senior, so you're 65 or older, you become automatically eligible for the federal, health care program, Medicare. What they are sort of talking about is lowering that threshold so you can maybe enroll at 60 or 55 if you so wished.

18:57 So, again, it will be progressive steps, not not a draconian kind of impact. Okay. Thank you. Next question is how often do you rotate between health care subsectors, and what drives the rotation?

19:16 Again, that's an interesting question. So so there's there's no simple answer to this. The way the way Brett and I think about the world is, you know, we have a portfolio of what we believe are the best companies to to to deliver returns within the universe that we're investing in, which is companies that can that can contribute to this change in health care that we think is inevitable. And every day, we have a we have a meeting where we sit down and we say, right. Do we have the right exposures in terms of risk and returns of return? And one of the things we're very, very proud of is is our Sharpe ratio, which is our sort of volatility adjusted returns because this isn't about swinging for sixes. This is about thinking and planning ahead and making sure we deliver the best possible returns at the best possible balance of risk. Now lots of factors come into risk. You may well believe very much that a company has a fantastic five, six, seven year, potential for growth in in a particular market area. But at the same time, it might become overvalued in the shorter term, or there might be political or regulatory risk or competitive elements that come to light that cause you to to to feel that you want less exposure to that. So so all of those factors really come in into rotation. And and, we probably rotated the portfolio more in the last fifteen or so months, than we ever have before, within the the subsector exposures that we've we've historically held because of the coronavirus pandemic. So, anyone who's a regular reader of our fact

20:46 sheets will know that we've we've commented extensively on our views on how the pandemic would unfold. And and, you know, fortunately, in in many ways, we'd be more right than wrong on those things. But what what... In particular, in the in the middle to to latter part of the year, we were very concerned about other people's expectations of this return to normal, particularly around health care and this idea that, firstly, the pandemic would be over quickly. Secondly, that the health care system could return to to normality, almost immediately after that. Thirdly, that people would be willing to go back to hospitals and doctors as as if nothing has happened. And fourthly, most importantly for us, was this notion that the health care system could then operate over a 100% of normal capacity to clear this backlog. Now you'll be very aware here in The UK with 4,600,000 procedures in the backlog for the NHS that, of course, that isn't the reality of how health care work, but that was very much what was being baked into numbers. And at one point in the late summer, I think expectations for for health care revenues in many subsectors for 2021 were actually higher in late twenty twenty than they were in 2019, almost as if we'd never had a pandemic, and and it was never gonna impact the the year that we're in now. And it's very clear to all of us, right, that that isn't the case.

22:01 So, we've had to, dance to the market's tune perhaps a little bit more than we would have liked to during the course of 2021. And the way that's, panned out for us is that some subsectors of the market became very overvalued, particularly in, some areas of of of health care technology, health care IT, and some of the more gene sequencing kind of blue sky, you know, testing things. But a lot of, retail money has flowed into health care seeing all the innovation around the pandemic, and it's tended to flow into thematic areas where where people are buying the the the idea more than perhaps the the reality of what's going on. And then in the latter part of the year, we became very focused on on on making sure that we were investing into defensible revenue. So therapeutics for people with very severe medical conditions that we knew they were highly motivated to stay with those treatments, lots of investments into services and and and things where where where revenue was was guaranteed under under longer term contracts.

22:58 As Brett said earlier with his answer to a previous question here, the world feels very different to us today than it did six months ago. Vaccines very clearly are efficacious in driving, down infection levels and and most importantly driving morbidity and mortality down to the point where although coronavirus is now pretty much endemic across the world, in the nations that have managed to to to to to move forward with their vaccine programs, and The UK, of course, is one of those, we can begin to look look at a world where where things are are are much more normal. And therefore, we've been able to move our exposures back towards a more balanced and and and broader remit of companies, that reflect the opportunities and with with that newly, appropriate risk matrix. So I I can't give a specific answer to say, you know, how often do we rotate. It's very much dependent on that balance of risk and reward. But one of the fantastic things about this strategy and the and the mandate that the board has given us is it's unconstrained.

24:01 So we have that freedom to move as we see fit to balance risk and reward in the way that we think is best, for our investors. And, hopefully, you can see that in terms of the returns and in terms of that chart ratio, so the volatility of those returns versus the overall market. Okay. Next question is medicinal cannabinoids are a growth area. Is this something you would consider investing in? And perhaps we should also distinguish between cannabinoids and recreational cannabis in this, Brett or Paul? Yeah. Sure. So just for for clarity, recreational cannabis, there are some publicly listed stocks that are notionally within the the MSCI World Health Care Index, but we would not invest in in any of those.

24:53 When it comes on to medicinal cannabinoids, yes, absolutely. This is an area we would invest in, and indeed, we did have a significant holding in a company called GW Pharmaceuticals, which recently got purchased by another company called Jazz Pharmaceuticals. We've had the holding in GW for a good two, two and a half years, something like that. Very much, you know... Again, it played into our strengths during the pandemic when there was concern around, you know, the the volume picture within health care. Is it... Are people going to get their prescriptions renewed? Ultimately, GW Pharmaceuticals, their marketed product is a product called Epidiolex, and it's for infantile refractory epilepsy. So really hard to treat epilepsy for for children. And, ultimately, if you are a parent and you see your child having, you know, multiple fits and seizures every day, you will... And you know that this medication will assist them and reduce those fits, you will move heaven and earth to go and get that script renewed every month. Whereas if you are taking, let's say, an antihypertensive, you're generally asymptomatic.

26:05 You don't feel necessarily any worse or better, and therefore, you're far more likely to defer or miss taking your medication or your script. So this is an area we do like. It's a it's a very... As the question says it is a a great growth area. So, yes, we would happily invest in other companies in this space. Distinguishing that they are medicinal companies, not recreational and not cannabis as opposed to cannabinoids. Yeah. No. Exactly, Randy. I mean, just to put it into context, GW's product, that was an FDA approved product. It had to go through multiple years of rigorous clinical trials. The manufacturing is actually sourced from The UK, but again, it's all highly controlled and regulated.

26:53 With a prescription from a doctor? Yes. Okay. What is your view on exposure to China, India and Asia? So I think I think it's probably broadly accepted that this is the this is the Asian century as it were and, you know, from a demographic and an emerging wealth point of view. And if you look at health care generally, what you'd find is is is, what we used to call emerging markets, but but, you know, as a non non non Europe, non US, non Australia, New Zealand kind of So about 15% and growing of of overall health care. You you know, it'll vary by company and subsector and what have you, but that's probably a reasonable proxy for for where we are right now. And clearly, because of demographics and particularly in China and and because of wealth creation and GDP, moving up again particularly in China, these will be significant areas. So so if you look at health care and GDP, what you find is that as you as you achieve kind of middle and then advanced economy status, there is a disproportionate increase in the percentage of GDP that goes towards health care, which makes sense. You know, once you're... You you you you you have a stable income, housing, food in your belly, you you you obviously have the time and the opportunity to focus on and worry about staying well.

28:12 And so society demand for health care increases significantly. So we we are very happy to have exposure to these marketplaces, and in, we have some specific investments focused on the Chinese market, for example. However, one also needs to to to recognize some of the issues with investing in these these frontier markets. So firstly, our strategy is all about concentrated portfolio. It's all about operational gearing, and we issue kind of conglomerate type companies. And and historically, in these areas, you tend to get more conglomerate rather than focused companies. That's start up culture, that venture capital culture that that takes companies public, you know, possibly before they're, they're profitable and and and in very focused areas. It's a relatively recent thing in a number of markets, particularly in China, for example. So we see lots of opportunities in the future, but but the opportunities in the past that meet our investment criteria have actually been rather limited.

29:13 And then you also have some issues around ownership control and and and the function of capital markets. So for example, you'll all be, I'm sure, aware of what happened earlier this year in The US with a company called GameStop and how retail investors sent the share price of a company, up in a way that had actually nothing to do with its intrinsic fundamentals. Retail investors only account for about 15% of activity in The US market. The rest is is is effectively institutional driven, professional investors who you hope will, of course, be more rational in the way they behave. If you look at China, it's basically the other way around. It's about 80% retail these days. So you are going to see a lot more volatility in markets. You are going to see, more frequently, you're gonna see disconnect between intrinsic value that we talked about at the start and and share prices. And, you know, we need to be very careful about that. And we don't want to be in the business of rapidly trading in and out of things because one minute, they're really cheap. The next minute, they're really expensive. So, we we we have a degree of exposure to these markets.

30:15 We evaluate more exposure to these markets all the time as part of our, kind of unbiased global approach to investing in health care, but we are very sanguine about, actually pulling the trigger and deploying investors' capital into markets unless we're very, very confident that what we're buying is is very clear, very clean, very fundamental, and very operationally geared into the trends that we we are focused on for the health care system in the long term. Thank you. The next question is, what is your view on the investment case for large cap pharmaceutical companies such as GSK or Astra? Would you invest in these sorts of companies if the investment case was sufficiently good? And in addition, there's a question on the live chat from Ray W, which I think is, when is BMY, so Bristol Myers or Big Pharma, going to come alive?

31:14 So talking about large cap pharmaceutical companies, I mean, ultimately, if if you look at how we see the, you know, the health care system evolving and the needs of the health care system, you know, the whole sort of making the system more efficient, more productive, we ask ourselves, are the likes of GlaxoSmithKline going to be part of delivering that change that's required. Now to a certain extent, they may come up with an innovative new medicine, so that clearly would be of benefit. But as Paul said in answering the earlier question, our our job isn't to find an interesting compound buried inside Galaxo. Our job for the shareholders and and and the investors in the trust is to go and find the most operationally geared play that we can. So if we find a really new, innovative, highly exciting class of therapeutic, KLAXO may have one, but, actually, this biotech company in The US might have one, and it might be the principal driver of the valuation of this US biotech company where, as in a massive conglomerate like Glaxo, it's going to be diluted by all the other aspects of of Glaxo's business. So for us, what will principally drive us to invest in a big mega cap pharmaceutical company ultimately comes down to valuation.

32:34 So when we were talking, you know, on the extension of the question, Randy, about Bristol Myers, the reason we like Bristol Myers is because it is incredibly, incredibly cheap. You know, when we do all of our modeling in terms of cash flow generation, you're getting the... Pretty much the existing marketed business in in cash flow back to you before you even start looking at the pipeline. The issue around all of the mega cap pharmaceutical companies is is what we call the overhang. You know, we touched earlier about pricing risk, legislative risk. You know, all of these things generally cause cause these these companies to trade optically cheaper in terms of market multiples than than one would expect.

33:20 K. So... And I think it's worth saying that Bristol is one of your larger... Or our larger positions at the moment. Is that right? Yes. That's correct. Yeah. Yeah. But I think it's the largest holding at the moment. Correct. K. We're also asked two questions which are very similar. Are you invested in any private unlisted companies? And then I think it's Bill H. Do you hold any unquoted companies in your portfolio? And if not, why not? That's a that's a great question. The answer is no. We... Our investment mandate does not cover, private companies. And, for for a strategy like ours, we think that's absolutely appropriate. So so there there there are a number of of of things to consider. First and foremost, with an investment trust, we have the share price and we have the net asset value.

34:17 And it's in the interest of all the investors that those two things are as tightly correlated as possible. And, one tries to achieve that through a discount control mechanism, and ours is what we call an earning redemption option, which means that if ever the trust were to trade at a significant discount, you have the right once a year to effectively request that your shares are liquidated and you receive your pro rata share of the net asset value. And that's a way that we... Has been demonstrably successful for BBH and some other trusts, in keeping that that, share price and net net asset value aligned. Now if you think about those two things, liquidity is a critical part of you having confidence in that in that redemption option. You know, it's all very well requesting your share of the net asset value, but if we couldn't then liquidate what we hold on your behalf, it would be a meaningless gesture.

35:06 So if you're going to have a redemption option, you need to have some liquidity constraints around that. And you you also... We think for investors, you need to have confidence that when you see a net asset value reported by the, investment manager, you need to to have confidence that's a real number. And, so so the way that we do that is we we ensure that, that effectively what is reported to you is is is what we could have sold the holdings for the prior day. So so, again, it needs to be in things where there is liquidity so you can have confidence in that price. So, we... There's there's nothing wrong with with private equity focused strategies, and there's certainly nothing wrong with wrapping those more illiquid kind of investments within an investment trust structure. Indeed, it's probably the optimal way to do it. You see lots of private equity and, you know, property related trust that exist, for example. But for us, we think, that given the huge number of potential opportunities in the listed sector to achieve what Brett and I are trying to do. And the best thing to do is to not confuse the picture and and and mix public and private together.

36:14 So, we don't have any privates. We cannot have any privates. And frankly, we're we're we're very happy about that. There's just one point of clarification I should make on that just for full clarity, which is there are no privates at the point of purchase of a position. There may be circumstances such as mergers or where a company gets unlisted... Delisted for other reasons that we may end up with a legacy position which is private. If that occurs and it has occurred, we will mark that quite conservatively. Or in one case, we marked it down to zero because because there were other issues involved there. But in terms of day to day process and actually investing in companies, they're all public and the board also monitors the liquidity and ensures that.

37:05 Is there anything, Joe, you want to add to that or you're happy? That's fine. Okay. Next question is... There's actually two questions which I'll take together. One is on the proxy results. There appears to be a very large number of withheld votes as opposed to votes against for at least some of the directors. Does the board have any idea of why this might be? And with that, I'm going to link another question which has been about the female... A numb... A number of female directors on the board and the Hampton Alexander review. So the first point is that we as a board, are aware of the Hampton Alexander review, which requires companies of our size to have a third of their directors be female, and we're committed to that.

38:04 Secondly, we joined the FTSE two fifty in the latter half of last year, and generally, it's considered we're allowed up to a year to reach that. We did state in our annual report that we're committed to that process. There has been independent corporate governance reviews which have highlighted that, and a couple of institutional shareholders have raised the issue. Well, sorry. One institutional shareholder has raised the issue with us and indicated they would vote against directors, particularly me, on that basis. Subsequently, they changed their vote before the proxy deadline from against to withheld.

38:50 Now from the board point of view, I I and I think the board tend to be a bit conservative in what we say to the market. We'd rather deliver rather than promise. But I'm happy to say that we are in the process of looking for a female candidate. We have hired headhunters. They have given us a long list because the closing date was the beginning of this week. We're in the process of whittling down that long list to a short list, and in the next few weeks, start an interview process. Joe, a senior independent director, is there anything you want to add to that? Sorry, Joe. You're on mute. Yeah. Okay. No. There isn't. I mean, I think that's... Speaks for itself. We've... We we are committed to sorting out the board composition to be in line with the review, so that's well in... Well underway.

39:44 Okay. Thank you. The next question is, at times, you've run relatively high cash balances touching 10%. What's your thoughts on leverage? Now, in many ways, I think, Brett, you've answered that. But is there anything else you want to add? Or do you want to just mention what the current I mean, I I I think it's just worth reiterating that over the the mid to long term, the target leverage is to run a a mid to high single digit net leverage for the trust. And I think Paul and I both very much feel that that is appropriate. Indeed, pre the pandemic, those were the levels we were running. It's just, you know, for the duration of this unprecedented time, we we... We've ran some cautious positions around cash. We do not want to run large net cash positions. We want to invest the money for the investors to generate, you know, ever growing returns. So we don't we don't like running all of this this cash. So... But mid to mid to high single digit net leverage, mid to long term is still appropriate.

40:52 Yeah. Yeah. Just to just to quantify Brett's reply. So if if you look to the end of two thousand nineteen, we've run effectively 5% net leverage. And then as as the question alludes to, we ran a significant amount of cash in the second half of, 2020, but hopefully, it's become clear from the multiple answers to the questions. We had significant concerns around the pandemic and the risk that we could see, a further sudden deterioration in in in in equity sentiment, because people were were, in our view, unduly bullish about about the the way the pandemic would unfold. We've had a relatively gentle landing

41:32 on that, so so assumptions have moved in the direction we expected in a fairly calm, benign way. And, again, you know, throughout that period, despite holding significant amounts of cash, we have continued to outperform our benchmark and, done so with with, significantly lower levels of volatility than the benchmark. So from a portfolio risk management perspective, I think,

41:56 we absolutely believe that we handled that correctly. K. Next question is, can you explain the dividend policy? Do you want me to do it, or do you guys want to explain it? I don't mind which way. Happy for you to do it, Randy. So the dividend part... So the first thing is the founding of the trust. At the point of the founding, it was felt that it was important for a lot of UK investors to be able to receive some form of income on an annual basis, and there was a lot of investor feedback on that. So the decision was made that something like three and a half percent would be the right number. So what we do is every year at the end of the year, we look at what our NAV is, and then we allocate three and a half percent of that to be a dividend to be paid over the following year in two steps.

42:56 So there's an interim dividend and a final dividend. Now we will be the first to tell you that that dividend, in order to achieve that, some of it comes out to capital, and that's simply because a lot of the companies we invest in are more growth orientated rather than high dividend paying. But we prefer to do that rather than chase companies which pay a high dividend but don't give growth because overall, the total return to shareholders, we believe, is better this way. So it's three and a half percent of the end of year NAV paid in two payments, an interim dividend and a final dividend. Is there anything anyone else wants to add to that?

43:44 Nope. Okay. Next question is, as someone who, this is from Ray W. As someone who has worked in the pharmaceutical industry, it has been extremely frustrating working out what sort of companies are in b... Each of BBH's sectors. I know it's complicated, but some illustration would be appreciated. Paul, I guess, really, technically, there's subsectors within health care. But, Paul and Brett, do you want to explain the subsectors and how you're slightly different from the main, indexes and why? Yeah. Sure. So so there there are various, subsector classification systems. The most widely used globally is the the the the GICS system, g I c s, which breaks health care down into only about six subsectors.

44:40 And we don't really think that reflects the reality of the world. Certainly not how we think about the world. And some of those characterizations are a little bit arbitrary as well. You know, is there really any difference between a specialty pharma company, a pharma company, and a biotechnology company, for example? They all ultimately sell drugs of varying different kinds. And so we choose to to

45:02 bisect the world differently, we have our own approach to doing that, which reflects, we think, more more appropriately, the, the end customer dynamics of the different markets that our our companies serve. And that's how we we choose to do it with specific regard to to pharmaceuticals. Rather than have generics, specialty pharma, biotechnology, and pharmaceuticals, we simply have what we call focused and diversified therapeutics. And hopefully that's, intuitively, clear. So if you are a company who is specializing in one or two specific areas or or a specific kind of technology, so you're in a, you know, an inhaled therapy company or whatever it might be, then we classify you as a focused therapeutic company.

45:53 If you are a diversified company with your finger in many pies like Glaxo or Novartis or whatever, or even somebody like an Amgen, which traditionally would be considered to be a biotechnology company, but really doesn't look any different to a Glaxo when you think about the market dynamics and how the business operates, then we put all of those into that diversified therapeutics bucket. So there is a logic behind what we do. We're not trying to, be be be difficult or obscure what we're trying to do. We actually think it better reflects the reality of of of the investments we're making. And hopefully, that allied to the to narrative that you get in the in the monthly fact sheets, which are very detailed. And if you don't look at those, we'd encourage you to do so. Hopefully, we'll we'll we'll help with the language that we use to describe the companies will help explain better why we're making the allocation decisions that we are.

46:44 And I'd just add to that. There was a comment earlier about Warren Buffett's letters. I'm not saying that our monthly fact sheets will be as widely read as Warren Buffett's letters, but for any, investors who haven't read them, they are available on our web site, and they do give insight on a monthly basis as to what the team is thinking. Next question. Slightly technical question, and I'll happily refer to the parts in the annual report. This is from Toby Kay. First bit is, you don't seem to have picked up on an email I sent on the March 15. So for that, I apologize. We do try to read all the investor, emails, but we will check whether we had received it. But it... The actual question is, when asked about reference in the annual report to turnover on pages three and fourteen, it was not at all clear whether these referred to annual or monthly turnover.

47:45 I ask for confirmation of whether the 14% turnover figure referred to annual or monthly turnover. I also ask that this be stated more clearly and consistently in future reports. Can the board please respond to this question? So the particular part in the annual report is on page three where... Sorry. Just bear with me a second while I find the right page. Where we state that as a result of COVID, there were a number of changes in the portfolio giving rise to greater portfolio average turnover measured as traded volume, less capital inflows versus gross investment value, which was 14% at year end. This compares to a turnover of 6% in the financial year 2019.

48:35 That was on page three. And on page 14, I think the other paragraph... Sentence he's referring to is overall turnover expressed as a percentage of gross value traded in a given month has run at about 14% during fiscal twenty twenty versus 8% in the period from inception to the end of fiscal twenty sixteen. So I think the confusion's because we said the word gross value traded in a given month rather than annual. But Paul and Brett, do you wanna just clarify that, and we'll look to that later in the future?

49:13 Yeah. I mean, sorry. It's an annual figure. So so so to that point, it was, you know, it's 14% in in in in our financial year '20. It was six percent in the prior year. It's been 8% aggregated over the period, since inception. So, up to the end of of twenty nineteen. So hopefully, that's clear. So so this this is a a low turnover vehicle. Yes. And I think the point there is that even though the team have been more active because of COVID versus previously, it's still only 14% of the portfolio that's turned over. So if we didn't have any inflows, so everything was static, only 14% of the portfolio... In terms of AUM, 14% of the portfolio would have turned over during that year as a whole. Is that correct, Paul?

50:05 Well, you're measuring on an average... On a on a on ongoing average basis. Yes? Yes. Yes. So, Toby, I hope that's helpful, we'll try to clarify it. We'll also double check on your email. I think that's all the questions that come in live. And then at the, pre sent questions, I think the only remaining one currently is really... Is gridlock, I. E. Nothing negative for health care set health care sector happens, your base case regarding US politics. Now, I think you've answered that in what you touched on. Is there anything else you want to add to that?

50:51 No. No. I think we covered that in the in the previous question, Randy. So those are all the questions I have at the moment. There are none others, so... And that's a combination of all the pre sent questions and the ones that are live. So I think we call a conclusion to the meeting. Thank you for everyone to attend. I apologize again, Toby, that we haven't picked up on your email, but we're always open for emails. Or if anyone wants to contact either the team or me directly, please feel free to do so. Or... Oh, sorry. I'm going to actually stop myself because there is one question I've just seen. Sorry. I missed this one out. Could you give a couple of examples of how the expertise of your NEEDs has shaped your investment thinking?

51:45 Clearly, it wasn't timekeeping given I missed out that question. Do you want to give a couple of examples of how the expertise of your NEEDs have shaped your investment thinking? I mean, in terms of specific... The simple answer. So so one of the things that... That's really interesting about BB Healthcare that I think is probably different to some of our peers, is that we have very regular and discursive interactions with our NEEDs on a number of different topics. And we're very fortunate to have a wealth of investment related experience, not just in corporate governance terms, but but in terms of the experience of of of individuals on the board like Paul and Justin and Randing. And also, obviously, having physicians on the board like professor Stebbing, like professor Jung, and then we had Sid Murkady as well who who who departed from the board in 2019. But all three of them are physicians of of of tremendous international repute and, you know, have have roles that that that give them incredible insights into health care. So, they are there as a touchstone for us.

52:53 And and all I can tell you is that, for example, we had a board meeting prior to this AGM as is customary, and we ended up having a discussion about the direction of the evolution of the portfolio. And, you know, there was an there was an exchange of views about, what what what we're thinking long term and and and what our physician, NEDs feel feel about our views on that. And I think that's incredibly valuable. I mean, the reality is it's a pretty much a consistent exchange. So I wouldn't want to just limit it to a few examples, but we we we believe very strongly that having people who have that insight is is valuable. And and also, again, you know, leaving aside the the the obvious tremendous skills on the corporate governance side, having people who have run money and and being investors themselves gives you another level of, what's the right word? Another level of interaction and inquiry. You know, people you can bounce ideas off from questions and and and huge amounts of experience as the fund grows and we deal with various issues. Need to have people that have have worked in asset managers, both small and large, on the board.

54:00 They can give you a a huge amount of concept. So so I think there's a tremendous depth of real world experience on our board. I think it's incredibly valuable personally. And, and we draw on it as much as possible, which is what I hope you you would want us to do. You know, our interactions are not limited to to quarterly board meetings. There is a very, free flowing, an ongoing dialogue between all of us. And there's just a couple of extra things I should have... I should do and I mention here. So Tony Young is our newest board member. And, do you just wanna wave your arm? But Tony is a professor of urology and a practicing clinician, but he's also national clinical lead for the NHS.

54:51 Tony's also probably our youngest board member, Tony. Probably the most energetic, but the point about it is that one of the things that attracted us about Tony is that the NHS is probably the biggest integrated health care system globally. So it's something that we as a country should be proud of and also the thoughts that go beyond that. Now what I should emphasize though is we have a strict board conflicts prop policy to make sure that there's nothing ever discussed where any of us have specific knowledge about a contract, or anything that's going to be specific to an individual company.

55:37 We have a written policy on that, and Joe is our senior independent director. We'll keep an eye on any conflicts like that. But putting that aside, I think it... Where we can add as a board is both understanding health care, understanding what it's like to run money, understanding corporate governance issues, and also providing the environment for the fund managers to be successful in that and to bounce ideas around that. I should briefly say that, Paul Southgate has, run money for best part of two decades, I guess, Paul. And Justin, whose camera unfortunately is off at the moment, is a professor of oncology.

56:23 And, Joe, you've been involved in investment trusts and corporate governments for probably two decades as well. It's part of. Yeah. So I hope that gives some insight to shareholders on both what we hopefully contribute and also the parameters of what we... In which we contribute. One final bit on that which touches on one of the earlier questions is that I started as a health care analyst in in 1998 after a few years as a surgeon. And this would probably be the third or fourth time at a presidential change that we're looking at concerns about health care and health care pricing. So having seen it all a number of times before, I think, helps give perspective to the fund managers and allows them to bounce things off.

57:20 Is there anything anyone would like to add to that? K. So apologies. I'd missed that question out. There are no other questions, so I suggest we call it a day. Thank you for everyone attending. Hopefully, next year, we'll be able to do it in person. But as I said earlier, please send any further questions to us. Thank you very much. Randy, thank you very much indeed for updating investors today, and thank you very much to the board and the management team as well.

57:52 On behalf of the board of BB Healthcare TRUST PLC, we'd like to thank you very much for your attendance today. That concludes today's AGM proceedings presentation. Thank you, and good afternoon.