It looks like biotechs may be making a rebound, which may garner a closer look at this closed-end fund.
H&Q Healthcare Investors (HQH)
from Investor’s Edge
H&Q Healthcare Investors (HQH) top 5 holdings are Gilead Sciences, Celgene, Regeneron Pharmaceuticals, Biogen Idec, Alexion Pharmaceuticals, and Amgen, all giants in the healthcare/biotech field.
In addition to the giants, its in-house health professionals / analysts also select the firms they believe have the most promising drugs, devices, products or processes and those they believe are most likely to gain sponsorship from, enjoy joint ventures with, or receive outright takeover offers from some of the giant biotech or pharmaceutical companies in the world.
In addition, the fund can own milestone interests, warrants, convertible bonds and private companies or Rule 144 restricted, and as-yet-unregistered companies. While some of these will inevitably fall by the wayside, others will be purchased at prices considerably lower than the value they might receive in an IPO or a takeover.
There are caveats to bear in mind if you decide to mimic our portfolios and add this closed-end fund to your own account. First, don’t be fooled by the high “yield” numbers you will see on some websites. The fund pays its dividends in shares of stock, and those shares are created primarily from the capital gains the funds create, not from traditional interest and dividend flows. That makes them slightly less dependable in difficult times than traditional dividends.
Also remember that it is a closed-end fund and that, most of the time, most closed-end funds trade at a discount to net asset value. Right now, HQH sells for virtually no premium or discount, depending on the day you buy them.
At this level, we will initiate a position. But if we add to them in the future, we will look to do so on those occasions when the fund is selling at a discount to net asset value. Our final caveat is that it may not descend too much of a discount if institutions become more comfortable owning biotech and life sciences companies and if individuals continue to bid the sector higher.
Joseph L. Shaefer, The Investor’s Edge, www.investorsedge.us, 800-253-2088, April 2014