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H&Q Healthcare Investors (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 Sciences7.2%

Regeneron Pharmaceuticals

6.3
Alexion Pharmaceuticals5.2
Celgene4.5
Biogen Idec4.1
Perrigo3.4
Merck2.6
Mylan2.4
Medivacion2.3
Puma Biotechnology2.2

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:

20122011201020092008
Market Value Return51.43%18.90%10.04%(10.33%)(12.96%)
Expense ratio1.421.471.441.521.51
Investment Income(0.28)(1.00)(0.45)(1.30)(0.99)
Portfolio Turnover86.2895.7548.6866.3465.38

Conclusion:

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.

Source: H&Q Healthcare Investors: A Shot At Private Equity