The board of the Biotech Growth Trust (BIOG), alongside its investment manager Orbimed Capital, have proposed changing its performance benchmark from the Nasdaq Biotechnology index, to the Nasdaq Biotechnology Total Return index.
The plans, which were published in a circular sent to shareholders yesterday (5 June) have been sent ahead of an annual general meeting on 18 July.
BIOG has used the Nasdaq Biotechnology index as its benchmark since Orbimed took its helm in 2005. According to the trust’s board, the index – which was introduced back in 1993 – “does not include any reinvestment of cash distributions of index members”.
In 2003, Nasdaq introduced a Total Return version of the index, which includes distribution reinvestment.
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“In recent years the biotechnology industry as a whole and the constituents of the Nasdaq Biotechnology index have changed as the industry has become more mature,” BIOG’s board explained. “This has seen an increase in the number of Index constituents who pay a dividend, meaning that shareholders in some of these index companies now receive a total return comprising both dividends and capital return.
“While the element of the index’s total return comprised of dividends is currently modest and the company itself is not receiving sufficient dividend income to be required to pay a dividend under current investment trust taxation rules, the board believes this trend, in which dividend income contributes to the total return earned from the Index, is likely to increase.”
It added: “The board therefore considers that it is appropriate to compare the company’s NAV total return with the NASDAQ Biotechnology Index Total Return (net of withholding tax and sterling adjusted) and that this is the correct index to incentivise the portfolio manager to outperform.”
According to BIOG, the net total return index has gained 4.2% over three years and 33.1% over five. In contrast, the capital only index has returned 2.5% over three years and 29.8% over five. The trust’s NAV has beaten both of these indices over five years with a gain of 37.1%, but was left trailing in the dust over three years with a loss of 25.4%. The trust is currently trading on a 7.2% discount to net asset value, according to AIC data.
If the changes are approved by shareholders at the AGM, changes will take effect from 30 September 2024, which is the first quarterly calculation data for the trust’s performance fee.
