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Tekla Funds: In A World That Needs Healthcare, These Funds Have A Place In A Portfolio



  • Healthcare offers essential services that people can't go without, recession or not.
  • The Tekla funds can offer potential in any one of their funds for healthcare exposure.
  • Today we explore the differences and the similarities of the funds.
  • Looking for a portfolio of ideas like this one? Members of CEF/ETF Income Laboratory get exclusive access to our model portfolio. Learn More »

Healthcare business concept, Medical examination and growth graph data of business on tablet with doctor"s health report clipboard on background.
Photo by ipopba/iStock via Getty Images

Written by Nick Ackerman, co-produced by Stanford Chemist

Tekla offers investors four funds to choose from that are all involved in the healthcare space. There is Tekla World Healthcare Fund (THW), Tekla Healthcare

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This article was written by

Nick Ackerman profile picture
Nick Ackerman is an avid student of the markets and has been investing in his own accounts for over 14 years. He is a former Financial Advisor and has previously qualified for holding Series 7 and Series 66 licenses. These licenses also specifically qualified him for the role of Registered Investment Adviser (RIA), i.e., he was registered as a fiduciary and could manage assets for a fee and give advice. Since then he has continued with his passion for investing through writing for Seeking Alpha, providing his knowledge, opinions, and insights of the investing world. His specific focus is on closed-end funds as an attractive way to achieve income as well as general financial planning strategies towards achieving one’s long term financial goals.


I provide my work regularly to CEF/ETF Income Laboratory with articles that have an exclusivity period, this is noted in such articles. CEF/ETF Income Laboratory is a Marketplace Service provided by Stanford Chemist, right here on Seeking Alpha.

Analyst’s Disclosure: I am/we are long HQH, THQ, JPM. 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.

This article was originally published to members of the CEF/ETF Income Laboratory on April 19th, 2021.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (51)

Thanks for this article. I've held THQ for about a year now, and this is definitely the Tekla fund you want to own if your goal is to maximize total return. The five year returns clearly beat THW and blow away HQH. And THQ investors have gotten a better risk-adjusted return as well. See www.portfoliovisualizer.com/... .
Nick Ackerman profile picture
@toromi thank you for sharing! Of course, past returns don't predict what will happen in the future. I do see THQ as the more stable of the funds. HQH/HQL can blow numbers away when biotech is doing well - however, will lag otherwise. It will be a rough ride as well, as it typically is with biotech.
@Nick Ackerman Due to the volatility I see biotech as either something you trade, or something you hold with a *very* long time horizon. I prefer THQ's more balanced approach, which should serve investors well going forward. (Even though past results don't guarantee anything as you pointed out, the fact that the fund has a strong risk-adjusted return to date is a big plus.)
Nick Ackerman profile picture
@toromi that seems to be a reasonable approach. Thanks again!
EXCELLENT data and commentary.
BME is my core position in the sector, not counting "boring" small positions in BMY, PFE, and MRK for their dividend flows, and an occasional very short-term fling with LABU.
Nick Ackerman profile picture
@jazznut thanks for sharing! I hold MRK as well.
as i prefer fixed income , it took a while to warm up to Tekla funds but kept hearing good things about them. got THW @$13 ,skipped the RO and am very happy with it. your write up just reinforces that it was a good move. thanks
Jcb331 profile picture
@fairplayphil not to belabor the point but if you would have opted for the R/O at $14.26 price you would be up 10% now on price and 4% on Nav + $.1167/share/month on additional shares. not criticizing skipping the R/O, it could have gone either way, but just stating the facts as i see them. maybe I'm missing something.
Nick Ackerman profile picture
@Jcb331 it really could have gone either way. I didn't include the chart in this article now I realize, but had you switched to THQ instead, during the RO, then swung back that would have been the best result. That was what we had been suggesting. Of course again, could have gone either way!
alchemist11 profile picture
This analysis was much needed! Thanks!
Seatonmanagement profile picture
Long THQ, h/t to you, Nick, sometime ago now. Satisfied.
Nick Ackerman profile picture
@Seatonmanagement excellent! Glad to help provide an idea that fit your situation. Thank you!
Thanks, Nick - it seems like the portfolio of THQ is similar to that of the XLV. If that's the case, still go with THQ?
Nick Ackerman profile picture
@tommys that could be, as it leans more in a traditional Healthcare approach. I'd still prefer THQ. Though XLV could be a great place to hide out to wait for volatility. Because at that time THQ should fall greater due to leverage and the discount widening!
@Nick Ackerman - I asked because I'm in XLV and HQH. I will keep an eye out for the opportunity to switch from XLV into THQ when the market gives me the opportunity!
Nick Ackerman profile picture
@tommys I think for me to shift would require all healthcare CEFs that I'm long to go to premium territory. At that time, I'd consider switching to the ETF myself.
Healthcare is my background so I favor these funds. I held held THQ for quite awhile but dumped it before the virus problem. It's a good fund for overall health care exposure since it also includes healthcare REITs, but I didnt like leverage. Conversely, THW has a heavy concentration in pharma thus it lagged because of the crazy opiate controversy but did well once it was over and includes nursing home REITs. Both use a small amount of options as well as leverage which I don't like.

I am long on BME. It has low costs, no leverage, and writes individual stock options. Fees are reasonable, pays monthly, and covers the big healthcare stocks. It doesn't have REITs which I prefer to chose myself ie., HTA, GMRE, and DOC. It's sponsored by a huge company that employs good stock pickers. Distributions aren't crazy high so they are well covered.

BMEZ does most things HQL and HQH does with broader coverage of the health care spectrum. I have never liked the weird distribution policies of HQH. BMEZ pays monthly, uses options, takes risk in small companies and private placements. Again the large company that runs it and reasonable distributions make it an ideal long term hold. I don't like that it's a limited duration fund but I expect it will be successful enough to convert to a permanent fund. It still has a discount so there's a psychological motivation to buy it.

Nothing wrong with TEKLA funds as long as you understand what you are buying. The only thing I would remotely buy now is BMEZ even that is pricey.
Nick Ackerman profile picture
@jasonjones thank you for taking the time to add this input!
team Gabe profile picture
@jasonjones BMEZ has about 10% exposure to China
@team Gabe Thanks! I didn't know that. China is no problem at all because the USA sent it's manufacturing there. We are a debtor nation to them. I figure most USA companies do business with them. My daughter does international logistics as a profession. She deals with Chinese companies daily. Me? I think the USA made a big mistake outsourcing.
Great comparison article about these 4 funds.

Having bought THW right after the announced RO, I was able to take advantage of “sticker shock”. I am still confused, however, by mavens like yourself stating that the RO ultimately was a bad deal. Having exercised the offering, I was able to purchase more shares at 14.262. I understand the dilutive effects, but THW has held above 15 since the RO completion. That doesn’t sound like a bad deal to me and for others who purchased through the RO
Nick Ackerman profile picture
@rsmab01 it was because just sidestepping the deal and investing elsewhere would have given a better result. Plus, of course, the dilution to the fund's NAV - that's bad for all investors in the fund.
Jcb331 profile picture
@rsmab01 Same here. bought 600 more shares in the R/O @$14.26 giving me a total of 2240 shares. I'm currently up over 21% with a Yield on cost of 10.7%. sure, if you sold when it hit $17 and bought back at $15 that was also a good deal. the NAV was at $14.90 with a 13% premium before the R/O and is at $15.25 now with a 3% premium. not sure how it was dilutive.
Nick Ackerman profile picture
@Jcb331 an RO becomes dilutive when the shares are issued below NAV. One of the reasons that it wasn't hit as much as it could be, was because shareholders saved themselves and they didn't participate to the full extent possible.

That aside, I'm always glad to hear of investors making a profit and comfortable with how they're invested! Everyone has to do what is right for themselves. Thank you for sharing!
rickevantodd profile picture
Excellent article. Nice analysis of the 4 funds. I am long THQ, long-term and THW & HQH relatively recent purchases.
Nick Ackerman profile picture
@rickevantodd thank you for sharing! Good luck with your investments!
milbank profile picture
@Nick Ackerman, Like CHI which you discussed a few days ago. THW is another CEF I own (though not as long as CHI) that I is ideal for my purposes. Another "buy it and forget it" holding. A very generous, highly stable dividend paid out monthly. What's not to like?
Nick Ackerman profile picture
@milbank well said! Thank you for reading and taking the time to provide your input.
Dennis O profile picture
There are times when articles like this are needed just to make us feel good about our positions and this is one of those times. You authors on Seeking Alpha have helped so many investors realize their potential. You and others deserve a lot of credit. Don’t know how many times you all get a pat on the back but you all do a good service and is appreciated. Now get back to work before you get get a big head.
Nick Ackerman profile picture
@Dennis O thank you for the kind words! And the prod to get back to work! hah
Eileen Dover profile picture
Recently picked up THW when it dropped to 15.15. Liked the portfolio very much of top notch stocks. Like the yield as well. It was a better deal than THQ at the time.
Nick Ackerman profile picture
@Eileen Dover thank you for sharing! I don't see it as a bad fund, I just prefer THQ personally. At one time I did own THW as well. Wouldn't mind getting back in at the right time!
WSLegend profile picture
Long time holder at one time or another of all four Tekla Healthcare Funds.
All of them represent a great way to obtain yield from the growing healthcare sector.
One other piece of information, HQH and HQL pay quarterly and TWH and THQ pay Monthly.
Nick Ackerman profile picture
@WSLegend thank you for reading! I also appreciate the added input here, that can make a difference for some income investors in regards to their distribution frequency.
sc21 profile picture
thanks the review. These are older well respected funds. How do you compare them to BME? In terms of total return BMW and THQ seem to be quite close although in the last year Thq seems to have led. Not sure if there have been any important leadership changes. Much appreciated. SC
Nick Ackerman profile picture
@sc21 thank you! They do have some similarities in holdings. However, THQ uses leverage and BME writes covered calls on a portion of its portfolio. I'm long BME as well, though would suspect THQ to outperform during market rallies.
WSLegend profile picture
@Nick Ackerman
BMEZ is more attractive to many than BME
sc21 profile picture
@Nick Ackerman
Thanks your timely reply. Over the 3 and 5 year time frames the two funds have been close on total return. I originally bought BMEZ because of the pe holdings. Now I find that H and Q does the same thing. Seems to be a real toss up between the two funds. Historically H and Q has had a closer relationship to the industry but not sure how much that counts. Best SC
bryan555 profile picture
Thanks for the analysis. Very useful, as it's easy to get confused by Tekla. I was first tipped to the premium/ discount disparity by Douglas Albo, a few months ago. So bought THQ. Then got into THW after its crash.

Personally, I like BMEZ better than the other two Tekla funds.
Nick Ackerman profile picture
@bryan555 thank you! I'm glad you enjoyed. Also glad you were able to sidestep the rights offering. Then take the opportunity to get back in after the decline. I hold BMEZ and BME, as well as THQ and HQH. They have some overlap, but do also have different strategies and some differences where I don't mind holding both.
@Nick Ackerman Thank you for this article, Nick.
I hold a 50/50 allocation to THW (for pharma exposure and yield) and HQH (for biotech exposure).

Do you see any wisdom to adding THQ to this mix? Or is that a bit redundant?
Nick Ackerman profile picture
@kingssc I think THW and HQH are covering most of your healthcare exposure. That being said, I see THQ as a more stable fund and more appealing as it is trading at a larger discount. Though the difference at this time isn't significant.
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