H&Q Healthcare Investors: A Shot At Private Equity

Dec.27.12 | About: Tekla Healthcare (HQH)

H&Q Healthcare Investors (NYSE:HQH) is traded on the New York Stock Exchange. This closed-end investment company generally invests in the stocks of small and mid-sized biotechnology and other healthcare related companies. The overwhelming majority of its investments are in restricted securities, which include venture-backed companies and PIPEs. HQH prefers to invest in mid-to-late clinical stage companies.

The ten largest holdings as of September 30, 2012, are as follows:

Gilead Sciences 7.2%

Regeneron Pharmaceuticals

Alexion Pharmaceuticals 5.2
Celgene 4.5
Biogen Idec 4.1
Perrigo 3.4
Merck 2.6
Mylan 2.4
Medivacion 2.3
Puma Biotechnology 2.2
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HQH has assets of $510,493,063 of which 2.7% are short-term near-cash assets. It does not use leverage as the investments are risky enough. As of September 30, 2012, it had net realized gains of $6,747,021 and unrealized gains of $111,012,529. During its last fiscal year, HQH had appreciation of 51.43%, which was an exceptional year.

HQH does have fairly high turnover with no investment income. This is strictly a capital gains play. Percentage ratios for the past five years, are as follows:

2012 2011 2010 2009 2008
Market Value Return 51.43% 18.90% 10.04% (10.33%) (12.96%)
Expense ratio 1.42 1.47 1.44 1.52 1.51
Investment Income (0.28) (1.00) (0.45) (1.30) (0.99)
Portfolio Turnover 86.28 95.75 48.68 66.34 65.38
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This is a fine investment vehicle in a volatile sector of the market. It has good and bad years, and the discount from net asset value fluctuates widely. HQH should be in your portfolio, provided you are able to buy it at a proper discount. It must be followed and watched. It has a companion closed-end fund, HLH, which has almost an identical portfolio.

Disclosure: I am long HQH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.