Bellevue Health Regulatory News (BBH)

BB HEALTHCARE TRUST PLC

LEGAL ENTITY IDENTIFIER ('LEI'): 213800HQ3J3H9YF2UI82

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

For the year ended 30 November 2019

INVESTMENT OBJECTIVE, FINANCIAL INFORMATION, PERFORMANCE SUMMARY AND ALTERNATIVE PERFORMANCE MEASURES

Investment objective

The investment objective of BB Healthcare Trust plc ("the Company") is to provide Shareholders with capital growth and income over the long term, through investment in listed or quoted global healthcare companies. The Company's specific return objectives are: (i) to beat the total return of the MSCI World Healthcare Index (in sterling) on a rolling 3 year period (the index total return including dividends reinvested on a net basis); and (ii) to seek to generate a double-digit total Shareholder return per annum over a rolling 3 year period.

Financial information

Performance summary

1 These are Alternative Performance Measures.

2 Total returns in sterling terms for the year to ended 30 November 2019.

3 Total returns in sterling terms for the year ended 30 November 2018.

4 Source: Bloomberg.

5 Including dividends reinvested in the year.

Alternative Performance Measures ("APMs")

The financial information and performance summary data highlighted in the footnote to above tables represent APMs of the Company. In addition to these APMs other performance measures have been used by the Company to assess its performance, these can be found in the key performance indicators section of the Annual Report.

CHAIRMAN'S STATEMENT

I am pleased to present the third annual report of the company. This is my first as Chairman and I would like to thank my predecessor Professor Stebbing.

The third anniversary is an important milestone for the Company for a number of reasons as discussed below.

Performance

Over the last financial year, the Company's NAV increased from 138.72p to 143.11p i.e. an increase of 3.2%. The total shareholder return (i.e. including reinvestment of dividends) over the last financial year was 6.9% and the NAV total return was 6.6%. This was a little below the benchmark ("MSCI World Healthcare total return Index (GBP)") which generated 8.1%.

This year is the first time we can consider the three-year track record of the Company i.e. the 'longer term' at least in comparison to monthly or annual reviews. Over the three-year period the NAV cum income per Ordinary Share has increased from 98.23p at launch to 143.11p as at 30 November 2019.

Our investment objective can be split into two parts - a relative objective against a benchmark and an absolute one.

Relative performance: Since inception it is pleasing that the Company generated returns for Shareholders which exceeded the benchmark by over 8.4%.

Absolute performance: The Company has achieved an annualised total shareholder return of 16.2% thus delivering on its objective to deliver double-digit total Shareholder returns per annum over its first three-year period.

It is particularly satisfactory that the results for our inaugural three years have exceeded both our relative and absolute investment objectives.

Board Composition

As mentioned earlier I took over as Chairman during 2019 from Professor Stebbing. I would like to thank him for his work as Chairman and for agreeing to remain on the Board despite his other academic and clinical commitments. His insights into healthcare are invaluable and the Board and the Investment Adviser appreciate the clinical and scientific context that he can offer as the transformation of the healthcare marketplace unfolds.

Professor Mukherjee stepped down from the Board at the end of the financial year. I would like to thank him for his contributions to the Board and the Company and wish him well for his many clinical, academic and other ventures in the future.

The Board is in the process of considering its future composition and we will update Shareholders in due course.

Portfolio Positioning

The portfolio is positioned to take account of value changes in stocks that are able to capitalise on the changing delivery and capability within healthcare. Geographically the Company remains heavily exposed to the US markets - simply by virtue of the number and size of the companies listed there. This does lead to an exposure to the US Dollar. The Company has the ability to borrow in US Dollars which may provide a small amount of 'natural hedge' but the Company does not take out any specific currency hedging.

We have no specific requirement of subsector allocation into different sub-sectors of healthcare - again investments should be driven by the opportunity set that presents. The Investment Adviser's report provides more detail of their current thinking.

Gearing, Portfolio Turnover, Expenses and Structure

The Company has a revolving credit facility ("RCF") with Scotiabank. As of 30 November 2019, the Company's net gearing was 0.9%.

Consistent with the planned 3 to 5 year holding period, the Company's average turnover (measured as traded value less capital inflows versus gross investment value) has remained around 6% at year end and overall activity levels were slightly lower in financial year 2019 than in financial year 2018.

The OCR was reduced to 1.19% for the 2019 financial year, as compared to 1.21% for financial year 2018. The Investment Manager receives no further fees in addition to the management fee. All other factors being equal, we would expect the OCR to decline further in 2020 as the assets under management have risen.

Responsible investing

The Board is also pleased to note that Bellevue Group has become a signatory of the UN Principles for Responsible Investment (PRI). Whilst the objectives of the Company are focussed on returns, it is important to recognise that the focus on 3 - 5 year holding periods necessarily requires consideration of the sustainability of investments which is significantly impacted by their environmental, governance and social aspects. Furthermore, it is becoming increasingly apparent that ESG issues are facing greater scrutiny within the investor universe

Share Capital

The Company's issued share capital had risen to just under 434 million Ordinary Shares by the financial year end, from 319 million Ordinary Shares as at 30 November 2018, an increase of 36%. Since the Company's year end, a further 2.1million Ordinary Shares were issued via the Company's block listing facility and the number of shares in issue stood at just over 436 million as of 20 February 2020. The Company has the authority to issue a further c.82 million Ordinary Shares ahead of the AGM on 23 March 2020. At the AGM we will be seeking authority to issue 43,605,706 new Ordinary Shares to meet investor demand in placings and tap issues and to fulfil the scrip dividend alternative.

I would remind readers shares issued through placing and tap issues can only be issued at a premium to NAV and the continued issuance has been possible because the Company's shares traded at a premium to NAV over much of the year. The premium was 1.3% as at 30 November 2019. The Board is satisfied that the Investment Adviser has demonstrated there is considerable headroom to grow the Company's assets without impacting its investment returns or liquidity position.

Dividends

The Company targets an annual dividend of 3.5% of preceding year-end net asset value, paid out in two equal instalments. The Company paid out a final dividend of 2.00p in respect of the year ended 30 November 2018, on 1 March 2019 and an interim dividend of 2.425p in respect of the financial year ended 30 November 2019 on 30 August 2019.

The Board has proposed a final dividend of 2.425p per Ordinary Share in respect of the financial year ended 30 November 2019 and, if approved at the forthcoming Annual General Meeting, this will be paid to Shareholders on 9 April 2020. As in previous periods, the dividend will be largely funded from the Company's capital reserves.

Regarding the financial year ending 30 November 2020, the Board is proposing a total dividend of 5.00p per Ordinary Share, this being 3.5% of the NAV per Ordinary Share of 143.11p (cum income) as at 30 November 2019. The Board intends to declare an interim dividend of 2.50p per Ordinary Share, and to pay this in August 2020. The Board intends to propose a final dividend of 2.50p per Ordinary Share for the financial year ending 30 November 2020 and, subject to Shareholder approval, to pay this dividend in late March 2021.

As discussed above, in July 2019, the Company introduced a scrip dividend alternative, allowing Shareholders to elect for their cash dividend to be automatically subscribed on their behalf for new Ordinary Shares. Certificated Shareholders who have already joined the scrip dividend scheme by providing an instruction through the Registrar's website and who wish to continue to have the full amount of their cash dividends, including the final dividend, automatically subscribed for new Ordinary Shares, do not need to take any further action. Certificated Shareholders who wish to elect for the scrip dividend alternative for the first time can do so online: https://www.signalshares.com or a mandate form can be obtained by contacting the Company's registrar Link Asset Services. Uncertificated Shareholders can make an election via the CREST system.

Outlook

As I write this the newspaper headlines are filled with coverage of the coronavirus (2019-nCoV). Even a couple of months ago it would have been hard to predict such an outbreak was imminent. Secondly, and tragically, it also reminds us of the ever-pressing need for healthcare and thirdly that healthcare has to continuously evolve to face new challenges.

Having acknowledged the futility of prognostication I will observe that sentiment and attention of markets and the media swing rapidly and sometimes unpredictability. Historically the fourth year of a US Presidential cycle has brought a lot of attention to bear on healthcare. However, in this cycle, 2019 (i.e. the third year of the cycle) seems to have generated focus on healthcare in the US. The results of these swings in attention is that valuations can move faster than the actual economic outlook of companies change. This can provide both opportunity and frustration.

We shall see if 2020 leads to even more discussion and debate on this topic or if the debate moves elsewhere. For more detailed discourse on the 2020 outlook I would refer readers to the Investment Adviser's discussion in this report and the monthly factsheets.

Over the longer term however my view, and that of the Board, remains unchanged - that healthcare demand will continue, and that innovation and disruption will create opportunities for investors.

Annual General Meeting

The Company will hold its Annual General Meeting at 11.00am on 23 March 2020, at the offices of our legal advisors, Stephenson Harwood - 1 Finsbury Circus, London, EC2M 7SH (the nearest tube station is Moorgate). Paul Major and Brett Darke, key members of our Investment Adviser, will provide an update on the investments and take questions at the end of the meeting. Members of the Board, including myself, will also be available to discuss the Company. I do hope that you will join us.

We recognise it is not possible for everyone to attend the AGM and I would remind readers that we have a dedicated email address for Shareholders to submit any enquiries or feedback they might have: shareholder_questions@bbhealthcaretrust.co.uk. I encourage you to make use of this facility. In the meantime, we will continue to post content from the Investment Adviser onto the Company's website to keep you informed of the Company's progress.

On behalf of the Board, I wish you a prosperous year ahead and thank you for your continued support of BB Healthcare Trust Plc.

Randeep Grewal

Chairman of the Board of Directors

20 February 2020

INVESTMENT ADVISER'S RePORT

Performance overview

As noted in the Chairman's statement, the Company modestly underperformed its benchmark index during financial year 2019, although such a torpid-sounding adjective belies pernicious levels of volatility that made the year very difficult to navigate successfully, as we detail below.

Indeed, whilst we are disappointed with this outcome, we agree that it should be judged in the context of the December 2018 sell-off and subsequent challenging macro-political environment that unfolded over the remainder of the current financial year. From a personal perspective, financial year 2019 was undoubtedly the most challenging year we have traversed, in terms of understanding and predicting investor sentiment.

After all, it is not our opinion that drives share prices, but the collective perception of all investors. Being able to understand when the market might focus on something (positively or negatively) is a key facet of delivering a reasonable performance in the near term and it is this most ethereal of skills that challenged us during the year.

Looking beyond the shorter-term picture, financial year 2019 also represents the Company's third anniversary and so we will also consider its performance since inception, as a three-year track record is considered to be an industry standard review period (alongside 5 and 10 years):

(1)The stated return assumes the reinvestment of dividends

The aforementioned factors saw the MSCI World Healthcare Index ("the benchmark") underperform the wider MSCI World Index in 2019, for the fifth time in 10 years. That having been noted, over a ten-year period, investing in the benchmark index would have delivered a sterling total return nearly three times higher than the same investment into the FTSE 100 Index and 91% higher than the MSCI World Index. The demographic factors that underpin demand growth in this sector have not altered and we remain firmly of the view that healthcare will continue to outperform the wider market over the longer-term.

As the table above demonstrates, the past three years have seen the Company deliver a material excess return versus the benchmark. In line with the previous comment, healthcare overall has delivered materially higher returns than the wider FTSE All Share Index and also outperformed the MSCI World Index, when measured in sterling.

The year in review

Figures 1 and 2 in the annual report illustrate the NAV evolution across the year versus the benchmark in sterling and US dollars. Figure 1 highlights clearly the three key phases of our performance during the year: the rapid recovery from the Q4 2018 market sell-off; the erosion of relative performance that began in May 2019 and gathered pace through the summer and the Q4 2019 recovery that saw the substantial relative losses of the summer mostly earned back.

Notwithstanding the persistent parliamentary shenanigans around Brexit and the general election, Figure 2 illustrates the impact of currency volatility on the Company's NAV evolution was negligible over the year as a whole (recall, our exposure to US dollar denominated shares averaged over the course of the financial year and we do not hedge any of our currency exposure). We consider these various phases of healthcare's journey through the year.

The rapidity and magnitude of the Q1 2019 snapback is difficult to rationalise, but then so was the sell-off in Q4 2018. As such, we would attribute the latter to a reasoned reaction, even if it does look rather extreme on the chart in Figure 1 of the annual report. As one might reasonably expect from a concentrated, growth-oriented portfolio that is more mid-cap focused, periods of significant overall market volatility weigh heavily on our near-term performance. Figure 3 in the annual report illustrates August and September 2019 were egregiously volatile.

A rational response by other market participants to uncertainty is to reduce exposure and it is harder to reduce a position in a smaller, less-liquid stock than a larger one. Larger, more diverse companies are generally less volatile as well, so for those wishing to remain exposed to the market, it makes sense to go up the market-cap/liquidity curve and hide in a safe, boring conglomerate: sell mid/small-cap, buy big/meg-cap. Since the reciprocal appetite for others to buy the offered small/mid-cap stocks is absent (a 'buyers strike'), the result is significant pressure on the prices of such assets.

This behaviour is doubly damning for our relative performance since we typically eschew the aforementioned conglomerates. Thus, we do not see any mitigation as the smaller-cap companies' decline and, because the benchmark is crammed full of mega-caps, its fall is more limited, compounding the relative suffering.

As the year's factsheets outlined in long-winded lugubriousness, the summer volatility spike and the relative performance fade that preceded it were due mainly to investors deciding the much-derided 'Medicare-for-all' proposal of Bernie Sanders and Elizabeth Warren was something to worry about after all.

As with the Q4 2018/Q1 2019 market round trip, quizzicality abounds. We cannot offer any substantive evidence as to why this decade-old proposal is any more workable now than before, or why Sanders is more electable than in 2016, when he lost the Democratic primary race to Hillary Clinton, or why people chose to focus on politics so far ahead of the actual election event in November 2020.

This brings us elegantly to Q4 2019 and the strong material relative and absolute performance from healthcare. We had almost reached the point where we feared our understanding of what was driving sentiment was incomplete and our recollection of past Medicare-for-all ("M4A") debates some sort of confabulation, when Elizabeth Warren announced that she would silence the naysayers by producing some detailed policy plans on implementing and funding this contentious idea.

Porcine idioms about lipstick or silk purses sprang to mind: inevitably, these documents served in opposition to their intention: illustrating starkly the multitudinous obstacles to pursuing this project; Warren even hinted at an intermediate step potentially being as far as it could get. To our mind, the subsequent damascene conversion of the market to healthcare being 'investable again' is as difficult to explain as any of the other previously described events - what really changed?

Figure 4 below illustrates the performance of the benchmark index by sub-sector across the year. There are some notable performances: drug pricing and opioid litigation worries weighed heavily on the distribution and generics sectors and the "M4A" overhang is evident in the performance of the managed care and facilities sub-sectors. Other Healthcare is all animal health and this sits outside the US Political risk bucket and thus enjoyed 'safe haven' status during the year. Diabetes-related companies drove the Healthcare Technology sub-sector.

MSCI World Healthcare Index Performance by sub-sector

In conclusion, we are a little older, a lot greyer and hopefully a little wiser after a chastening experience. Importantly, we stuck to our convictions through this period and continued to make all our investment decisions on sound, evidence-based reasoning viewed through a prism of long-term returns.

The market capitalisation of the Company rose from £447 million to £627 million, through a combination of positive investment performance and the issuance of 114.8million Shares across the year using our block listing facility. As of 19 February 2020, the Company has just over 436 million Shares in issue and a market capitalisation of £682 million.

The Company ended the year with a net gearing ratio of only 0.9%, versus 10.2% in November 2018, having substantially reduced leverage during the high volatility of the summer and uncertainties around trade influencing broader market sentiment. The average net gearing ratio across the financial year was 6.4%. We remain comfortable with our target of running a mid to high single digit level of net gearing over the lifetime of the Company and we will increase exposure as and when we feel the appropriate opportunities to do so avail themselves.

Company-level summary

During financial year 2019, the Company held positions in 35 companies (versus 40 in the prior period) using 36 instruments. The discrepancy between instruments and companies is due to the Company owning both the ordinary shares in Alder and subsequently holding the Contingent Value Right ("CVR") that was issued as part consideration when Alder was acquired by Lundbeck in October 2019.

We began the financial year with 27 holdings and ended with 31, averaging 28 per month over the year. We exited five positions and added nine during the year. Two of the exits were M&A-related, as portfolio companies were acquired (Celgene and Alder). Of the nine additions, three have been held previously. Excluding M&A and capital inflows, overall portfolio turnover was lower than the prior year.

Our top five and bottom five performers in terms of contribution to the evolution of the NAV are summarised below, along with their share price evolution in local currency and sterling over the year (which does not necessarily correspond to their performance for the Company, since the size and duration of our holding may differ).

Once again, it was our largest holdings that generated the greatest returns. Lonza and Humana's share price performance across the 12 months belies significant intra-year volatility - both stocks had a trough-to-peak move of ~45% during the year and adjusting our position sizing, these price fluctuations contributed to the material positive returns.

On the negative side; Evolent Health, Nektar, Akcea and CareDx are all smaller companies that suffered greatly in the volatility over the summer, with the first three seeing setbacks around the investment thesis that underpins their place in the portfolio. None of these are material to the longer-term investment case and we continue to hold positions in all four. As discussed in our April 2019 Factsheet, we exited our exposure to the drug retail supply chain (Walgreens Boots and AmerisourceBergen) due to the sentiment overhang regarding drug pricing reform, opioid litigation and increasing competition.

Our top 10 holdings as of the end of the financial year and other relevant portfolio metrics are illustrated in the following tables:

During the year in review, the Company held positions in 14 sub-sectors (the same number as in 2018): Biotechnology, Dental, Diagnostics, Distributors, Facilities, Healthcare IT, Healthcare Technology, Managed Care, Medical Technology, Pharmaceuticals, Services, Specialty Pharmaceuticals, Tools and Other Healthcare. In the prior year, there was exposure to Generics but not to Tools. The sub-sector exposure table above illustrates how the sub-sector allocation has evolved over the financial year.

We have continued to operate a strategy with a very high active share versus the MSCI World Healthcare Index: our Active share was 92.9% at year end (versus 90% at end financial year 2018) and remained around these levels throughout the year.

Recent trading and sector outlook

At the time of writing, (late January, 2020), the trading environment for healthcare stocks has remained broadly positive as the early comments on Q4 trading have been in line and the "M4A" debate in the US continues to recede in the minds of investors as a credible threat to the status quo. US/china trade & wider macro. 2020 is a US Presidential election year and we are in no doubt that the macro-political noise level will remain high.

We classify healthcare investments into 16 different categories. Note: these are not the same as the GICS classification system used by MSCI and, sometimes, we re-classify stocks into different categories based on payor dynamics or similarity to peers. In order to provide Shareholders with some additional insights into our current thinking, we have summarised our high-level thoughts on the outlook by sub-sector in the following paragraphs:

·; Biotechnology: having delivered stellar returns in 2017 and the first nine months of 2018, the US Biotech sector latterly struggled to deliver comparable returns to the rest of healthcare and has underperformed over the period since the inception of the Company. As we have noted before, this feels rather against the run of success that the industry has demonstrated at a fundamental level; compelling innovations are far from scarce.Concerns over drug pricing legislation and action to ease biosimilar entry seems to have been the main fear factors (arguably median pricing per treatment is significantly higher in this group) and this had receded somewhat. More importantly, M&A came back as a significant force at the end of 2019 and the pharma industry remains underweight new products to sustain growth.One should never rely on extraneous factors like bid speculation to drive returns and it would not be unfair to suggest there may be some shorter-term sentiment setback if the M&A momentum is not sustained in the coming months. Coming back to fundamentals, there are many interesting trial read-outs, filing and approval decisions, we expect a more positive outlook in 2020 than 2019, but we also thought that last year and it proved misplaced.

·; Conglomerates and pharmaceuticals: we have combined our comments on these two categories since investing in these sorts of companies is generally antithetical to our strategy. Nonetheless, they account for a material proportion of the MSCI Index and are thus very important for sentiment to wider healthcare. We see several overhangs to sentiment that might improve. For some companies such as Bayer and J&J, resolution of legal overhangs is probably the critical issue for improved sentiment.Thinking about large-cap pharmaceuticals more widely, the picture is more challenging. Firstly, let us lay out our long-term view: the split of therapeutics companies into pharma, biotech and specialty pharma feels rather arbitrary and backward looking. Generally speaking, most innovative drugs would classify as (and indeed originate from) biotechnology or specialty pharma, making pharma more of a legacy grouping of leviathans from another age, whose crapulous appetite for M&A and woeful R&D returns tell of a failed strategy kept alive by prodigious cashflows.

The contrast in investor sentiment versus biotech over the past year is surely all the more notable in light of these contrasting fundamentals. Will the pendulum swing back, or will the safe haven of those well-defended cashflows remain alluring in an uncertain world? Generally we only like to invest in big pharma when valuation is very compelling and that still remains the case for Bristol-Myers (which, post completion of the Celgene deal is arguably more akin to a large-cap Biotech than a classical pharma stock in any event). A tough one to call, but we would think US pharma outpaces premium-valued European pharma over the year, especially as the ability of the current administration to pass legislation that has a material impact on the drug pricing environment is looking limited. This issue may well return to the fore after the election but the make up of Congress will be critical. Anything close to the status quo argues against legislation coming to fruition.

·; Dental: everyone has teeth and they are invariably wonky. As such, orthodontics has very compelling long-term supply and demand characteristics. Within this, we continue to expect clear aligners to take market share from traditional wires and brackets and for Align Technology to remain at the forefront of this market evolution.Align experienced significant falls in Q4 2018 and Q3 2019. In both cases, the stock largely recovered within a few months. We saw both situations as more of a misunderstanding of the business than reflective of real issues (as the recovery attests) but we are chastened by the experience and more mindful of covering off event risk into reporting periods. That said, we see this investment as a core long-term opportunity. 

·; Diagnostics: this is one of our largest sub-sector exposures heading into 2020 and with good reason. The patient journey through the healthcare system begins with diagnosis and preventative health programs are predicated on screening. Better understanding of a problem is the first step to a solution and the tremendous improvements in diagnostic power (driven as much by computational factors as better chemistry and genetic knowledge) offer huge opportunities.

Our exposures cover a wide gamut from near patient testing to long-term monitoring and human genetics programmes. Despite the obvious growth potential, we also see significant value opportunities with some of our holdings, which are trading significantly below peer group averages. Our high weighting reflects our conviction and enthusiasm for this sector.

·; Distributors: investment returns from this sub-sector probably depend more on the resolution of litigation and legislative overhangs around drug pricing and the US opioid crisis than it does on actual fundamental business performance. On the latter, the situation is probably looking better as generic drug pricing has stabilised versus recent years.Hopefully the market is now over its Amazon/Pill pack paranoia, allowing investors to ascribe a higher fundamental price/earnings; this low-margin, infrastructure-heavy industry will not be an easy marketplace to disrupt. However, since we cannot have any edge on the former points, we will continue to eschew this sub-sector.

·; Facilities: we think hospital operators in developed markets are likely to continue to struggle at an operational level. The simple reality is that medical treatment is changing profoundly, and the infrastructure needed to deliver this care will change with it. As such, a typical operator is heavily exposed to debt and out-of-date infrastructure (think of a telephone exchange in late 1990s - for those under 40, Wikipedia can explain to you what a telephone exchange was). We have made an active decision to own the agents of change rather than the customers of that change.The notable exception is in developing countries rolling out national healthcare schemes (e.g. Asia and the MENA region). Here, the infrastructure is de-novo and the rising utilisation trend a clear positive. We are happy to own operators focused on these high growth markets. 

·; Generics: this has been a tricky sub-sector to navigate for a number of years and we do not see that changing in 2020. A confluence of factors (negative pricing, litigation, over-capacity, pro-domestic policy in China) weigh on the growth outlook. In the midst of all this, determining the right valuation becomes challenging and thus we are happy to remain on the sidelines.

·; Healthcare IT: this is a sub-sector where we think the interesting stuff is outside the benchmark, which is dominated by Cerner and Veeva. We continue to see myriad opportunities in this area: healthcare is a veritable data treasure trove and, as much as we all like to think that we are special and unique, an actuarial analysis of your medical history and lifestyle can be highly predictive of potential future medical issues.These datasets will only become more powerful as the amount of familial genetic data available online increases. Preventative "population health" initiatives can be driven by these datasets, prompting early interventions in the highest risk member of society, thus lowering acute medical costs over the longer-term. Big Brother is watching, and he might just save your life.

·; Healthcare Technology: if there was one segment of the market where we would like to have more exposure than we do, it is healthcare technology, which we describe as the application of continuous monitoring and algorithms to deliver improved care outcomes. Most of the opportunities are currently in the cardio-metabolic area.Sadly, the combination of limited listed options, tremendous potential and rapid visible growth has led to crowded longs and stretched valuations. It is hard to justify anything trading on double-digit revenue multiples. We will look to be more constructive in the event of a pull-back, but the momentum is definitely with this sector for those happy to ignore valuation.

·; Managed Care: health insurers were in the eye of the storm in 2019 as the 'Medicare for All' debate took centre stage. Q4 2019 saw a significant recovery as the probability of the harshest iterations of this idea faded away. Nonetheless, investors are still nervous and valuations could rise further as the Primary campaigns progress (through a further row-back from Warren or more centrist candidates like Biden, Bloomberg or Buttigieg storming ahead). We have thus entered the year with considerable managed care overweight versus the benchmark, but this will likely decline if the sector continues its positive re-rating. 

·; Medical Technology: it is difficult to reduce such a broad swathe of companies to a few paragraphs of commentary. We are currently biased toward durable equipment vs. consumables, resonating with our views on the facilities sector described above (akin to re-tooling a factory for new production processes).Generally speaking, valuations are also less demanding at this end of continuum as well, especially versus the higher-technology end of consumer med-tech that better resonates with our wider investment approach than commoditised items such as large joint orthopaedics. We prefer more focused operators and generally see our exposure declining given overall valuation levels looking stretched, although we would likely be very active in the event of a market pullback.

·; Animal Health/Other: we will not opine on this grouping as our investment mandate is around improving human health rather than animal health (eloquently described recently by someone as a "no pot, no pets" approach; there are now three Canadian-listed "medical marijuana" companies in the MSCI World Healthcare Index. We classify these into specialty pharma).

·; Services: we expect to increase our exposure to the services space, around our wider theme of the 'democratisation of innovation'. If one accepts the previously posited paradigm that big pharma is woeful at R&D, the future belongs to smart PhD students who can turn their idea into a clinical stage programme (which pharma will then license or buy for a tidy sum).There is now an army of service providers to help with clinical trial design and management, animal disease models, contract manufacturing, sales and market support and so on. The volume growth opportunity for these service providers to the next wave of drug discovery innovators looks very positive, irrespective of the macro-political outlook.

·; Speciality Pharma: this accounts for our largest exposure, alongside Diagnostics and is the reciprocal of the aforementioned bearishness on pharma. Therapeutics, in their various forms, account for roughly half the index's value in market capitalisation terms. With so much scientific innovation to come (the proportion of human diseases with known pathways but without drugs or with poorly effective treatments remains very high); the question is not 'should one invest in therapeutics' but rather 'how do I best invest in therapeutics'.For us, the approach is to concentrate on smaller, focused companies with clearly defined products or technologies that are not reliant upon presumed future R&D success beyond the visible late stage pipeline to justify valuation upside. Our increased weighting toward speciality pharma reflects the pivot away from Med-Tech as valuations have become more challenging and the corollary of opportunities thrown up by the previously discussed uncertainties overhanging biotech.

·; Tools: this sub-sector covers laboratory equipment used in research and testing. We eschewed tools for most of the first three years of the Company's life, feeling that longer-term growth expectations were on the high side. This was probably an overly cautious view, but our general sense is that the outlook is now more reasonable moving forward and we have made our first foray into this area. We may well increase our exposure further if we think valuation is supportive. However, as with the Healthcare Technology sub-sector, we are not willing to compromise on our longer-term return objectives or take on increased risk just to broaden our exposures.

We hope the preceding paragraphs give some colour around our thinking. As previously mentioned, although 2020 is a Presidential election year, we think the shorter-term political risks are now largely priced in and the focus should continue to shift back to healthcare's ability to generate material investment returns for the long-term, driven by unassailable demographic pressures. This would certainly be welcome after the turbulence of 2019.

We wish you all a happy and successful year and thank you for your support of the Company.

Paul Major and Brett Darke

Bellevue Asset Management (UK) Ltd

20 February 2020

Principal risks and uncertainties

(i) Market risks

Economic conditions

Changes in general economic and market conditions including, for example, interest rates, rates of inflation, industry conditions, competition, political events and trends, tax laws, national and international conflicts and other factors could substantially and adversely affect the Company's prospects and thereby the performance of its Ordinary Shares.

Healthcare companies

The Company invests in global healthcare equities. There are many factors that could adversely affect the performance of investee companies. The healthcare sector may be affected by government regulations and government healthcare programs, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many healthcare companies are heavily dependent on patent protection, and while this is a manageable risk, the expiration of a company's patent may adversely affect that company's profitability. Healthcare companies are subject to competitive forces that may result in price discounting, and may be thinly capitalised and susceptible to product obsolescence. The market prices for securities of companies in the healthcare sector may be highly volatile.

Sectoral diversification

The Company has no limits on the amount it may invest in the healthcare sector and is not subject to any sub-sector investment restrictions. Although the portfolio is expected to be well diversified in terms of industry sub-sector exposures, the Company may have significant exposure to portfolio companies from certain sub-sectors from time to time. Greater concentration of investments in any one sub-sector may result in greater volatility in the value of the Company's investments and consequently its NAV and may materially and adversely affect the performance of the Company and returns to Shareholders.

Management of risks

The Portfolio Manager has a well-defined investment objective and process which is regularly and rigorously reviewed by the independent Board of Directors and performance is reviewed at quarterly Board meetings. The Portfolio Manager is experienced and employs its expertise in selecting the stocks in which the Company invests.

The Company is invested in a diversified portfolio of investments.

The Company's investment policy states that no single holding will represent more than 10 per cent. of gross assets at the time of investment and, when fully invested, the portfolio will have no more than 35 holdings.

(ii) Financial risks

The Company's investment activities expose it to a variety of financial risks which include liquidity, currency, leverage, interest rate and credit risks.

There is a risk that the Company's holdings may not be able to be realised at reasonable prices in a reasonable timeframe. Although the Company's performance is measured in sterling, a high proportion of the Company's assets may be either denominated in other currencies or be in investments with currency exposure. The Company pays interest on its borrowings and as such, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rates.

Further details on financial risks can be found in note 19 to the financial statements. 

Management of risks

The Company will typically seek to maintain a high degree of liquidity in its portfolio holdings. The Company's Portfolio Manager monitors the currency risk of the Company's portfolio on a regular basis. Prevailing interest rates are taken into account when deciding on borrowings. Further details on the management of financial risks can be found in note 19 to the financial statements.

(iii) Corporate governance and internal control risks (including cyber security)

The Board has contractually delegated to external agencies the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the accounting and company secretarial requirements. The external agencies are outlined on the Directors' Report.

The main risk areas arising from the above contracts relate to allocation of the Company's assets by the Portfolio Manager, and the performance of administrative, registration and custodial services. These could lead to various consequences including the loss of the Company's assets, inadequate returns to Shareholders and loss of investment trust status. Cyber security risks could lead to breaches of confidentiality, loss of data records and inability to make investment decisions.

Management of risks

Each of the contracts were entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company. All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis. The Company's key service providers report periodically to the Board on their procedures to mitigate cyber security risks.

(iv) Regulatory risks

Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments. Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares on the London Stock Exchange. Breaches of the Companies Act 2006, The Alternative Investment Fund Managers Directive, accounting standards, the Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules could result in financial penalties or legal proceedings against the Company or its Directors.

Management of risks

The Company has contracted out relevant services to appropriately qualified professionals. The Secretary, AIFM and Depositary report on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.

(v) UK exit from the European Union

A referendum was held on 23 June 2016 to decide whether the UK should remain in the EU and a vote was given in favour of the UK leaving the EU (''Brexit''). The extent of the impact on the Company will depend in part on the nature of the arrangements that are put in place between the UK and the EU following Brexit and the extent to which the UK continues to apply laws that are based on EU legislation. In addition, the macroeconomic effect of Brexit on the value of investments in the healthcare sector and, by extension, the value of investments in the Company's portfolio is unknown. As such, it is not possible to state the impact that Brexit will have on the Company and its investments. It could also potentially make it more difficult for the Company to raise capital in the EU and/or increase the regulatory compliance burden on the Company. This could restrict the Company's future activities and thereby negatively affect returns.

Management of risks

The Company expects uncertainty around Brexit to continue during this transition period and until a trade deal is agreed with the EU. However, failure to secure a satisfactory trade deal with the EU is unlikely to significantly alter the risk profile of the Company, as substantially all the Company's investments are based outside the EU, and the majority of Shareholders are UK based. The position is, however, being monitored as the exit negotiation proceeds and the impact on the Company will be reassessed accordingly. 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have elected to prepare the financial statements under International Financial Reporting Standards as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the year and of the net return for the year. In preparing these accounts, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates which are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; and

• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the Company's website at www.bbhealthcaretrust.com, which is maintained by the Company's Portfolio Manager. The work carried out by the auditor does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditor accept no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmation statement

The Directors each confirm to the best of their knowledge that:

(a) the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

(b) this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Directors consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

Randeep Grewal

Chairman

20 February 2020

21 Financial information

This announcement does not constitute the Company's statutory accounts. The financial information is derived from the statutory accounts, which will be delivered to the registrar of companies and will be put forward for approval at the Company's Annual General Meeting. The auditors have reported on the accounts for the year ended 30 November 2018 and the year ended 30 November 2019, their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 30 November 2019 was approved on 20 February 2020. 

The report will be available in electronic format on the Company's website:

http://www.bbhealthcaretrust.com.

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM

This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.

22 Annual General Meeting

The Annual General Meeting will be held on 23 March 2020 at 11 a.m. at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London, EC2M 7SH.

Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

Mermaid House

2 Puddle Dock

London

EC4V 3DB

For further information contact:

Brian Smith / Ciara McKillop

PraxisIFM Fund Services (UK) Limited

Tel: 020 7653 9690

END