Chamois16

H&Q Life Science: Hold On, Its Time Is Coming

HQL may or not be a good investment in the future; it has been a very poor one this past year. I haven't heard or read any credible, persuasive rationale for why biotech or healthcare will, on a net basis, dramatically improve as a profitable business; there will be technological winners and losers, particularly in HQL, which is sort of a VC endeavor with more risk. Increased emphasis on R&D, as is often alleged, is apt to be offset by proposed reductions in patent protection and allowable prices charged, plus increases in corporate taxes. The net consequence is a great unknown.

More importantly, the Fink article fuzzes some issues of importance. The 8% yield is lauded, for example, even when it comes totally at the expense of capital appreciation. Iow, the fund must sell its winners to pay the distribution with proceeds from realized capital gains. If there is to be a resurgence in biotech and the investor wants to take full measure of that growth, truncating it for taxable current "income" doesn't make a lot of sense. Far better would be a fund which allows the winners to appreciate unharvested, at the expense of much lower payouts.

CEF like HQL cater to income oriented investors who, as has been mentioned earlier, subordinate total return opportunity to currrent gratification or need. This is particularly true on an after tax basis. They need to be valued in that context