This FTSE investment trust is stinking out my Stocks and Shares ISA. Time to sell?
As a general rule, we prefer to take a long term view on stocks at The Motley Fool UK. That said, not everything we buy will come good. And there’s one FTSE member in my Stocks and Shares ISA that’s done poorly for me in the time that I’ve owned it.
Should I stick with it or take the loss?
Poor performer
The stock in question is actually an investment trust. In theory, this can be a great way of getting exposure to a particular theme without the hassle of needing to find the diamonds in the rough oneself.
Trouble is, my holding in Biotech Growth Trust (LSE: BIOG) is still to deliver the goods. And that’s putting it mildly.
There are a few reasons for this shameful share price performance.
As it sounds, the trust buys stakes in companies that have some involvement in the biotech sector. Importantly, these tend to be smaller firms rather than healthcare heavyweights.
That last bit is key. As a rough rule, small businesses have more potential to grow as a faster clip. But they also come at the risk of greater volatility in their share prices if things don’t go well. And biotech firms are particularly susceptible to setbacks.
The anti-vaccine stance of US Health Secretary Robert F Kennedy Jr isn’t helping matters either and has probably contributed to a slump in funding from investors in the post-Covid-19 pandemic era.
But it’s not just that the share price has fallen in the years I’ve owned this investment. This (paper) loss is compounded by the fact that I’ve paid management fees on top. Quite reasonably, I’d like to see some return on that cost at some point!
Ready to rocket?
For balance, I reckon there are some good arguments for staying invested.
The potential for AI to revolutionise drug discovery can’t be underestimated. As an example, it was recently reported that scientists had used machine learning to create two potential antibiotics to kill gonorrhoea and MRSA. It’s still early days, of course, but the progress made so far is exciting. Indeed, it might be one reason why Biotech Growth Trust’s share price has climbed 12% in the last month.
A second argument is that the number of acquisitions in this space could rapidly accelerate as patents held by big pharmaceuticals begin to expire. The prospect of ageing populations — and the likely higher demand for treatments this will generate — could also see this part of the market get more attention.
Given the rate small firms burn through cash, an interest rate cut in the US would probably help to revive market interest too.
Here’s what I’m doing
Thankfully, my position in Biotech Growth Trust is pretty small, underlining the Foolish principle of spreading money around the stock market rather than going for broke in one niche sector. As a result, the damage remains minimal, if immensely frustrating.
Rather than move away from this sector completely, however, I’m now contemplating moving my remaining capital into an exchange-traded fund. The snag with this is that a (cheaper) passive vehicle like this will probably have lower exposure to smaller companies.
I need to do a bit more research before making a decision. Regardless, this investment is well and truly on the ‘naughty step’.
The post This FTSE investment trust is stinking out my Stocks and Shares ISA. Time to sell? appeared first on The Motley Fool UK.
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Paul Summers owns shares in Biotech Growth Trust Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
