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Thanks for posting this report. FWIW, there was a nice entry point in mid-October for THQ. A sudden price decline and resulting discount don't usually occur so close in time to an IPO. Fund price has risen about 10% since.
I bought THQ the other day after seeing the fund card. The article (thanks for posting that, as it's informative about all the funds in general) makes me feel a bit more satisfied with the purchase.
When plotting PRHSX, FSPHX, HQH, HQL, THQ using Morningstar (which properly accounts for the distributions), then at all time intervals except the narrow interval near the 2000 top, the closed end funds HQH, HQL underperformed. I would guess closed end funds are less tax efficient (just a guess). I understand that they may have some venture capital investments, but so far it did not help them to outperform. If so, do they have any advantages as compared to other ways of investing in healthcare? Any specific advantages in investing in THQ?
For me finder, the ability to trade the CEF instantaneously vs waiting for end of day pricing is pretty much it. I checked out the return graph as you did and didn't feel the T Rowe offering outperformed enough to make a change.
Thanks a lot for this reply, it is an interesting explanation. Can you also plot HQH and HQL versus PJP and IBB which you can trade instantaneously? Of course, past performance does not guarantee much, but during the last 5 and 10 years PJP (pharma) and IBB (biotech) performed better than HQL and HQH. Both IBB and PJP are very tax efficient. How about HQL and HQH? I would really like to know it, I could not find this information in M*. Usually closed end funds are very tax inefficient, but maybe this rule does not apply to these funds?
Thanks Mark, great to read the interview and for the first time I think I have a more specific understanding of the differences between the funds. Luckily it confirms the feelings I had from reading the available documents.
@finder - HQH and HQL deliver distributions in additional shares unless one specifically requests cash through their broker. Ergo very tax efficient until one decides to sell or donate shares. I don't know the policies for the other two funds you cited.
The nice thing is that if you had purchased pretty much any of these funds 15 years ago you'd be very happy today even if you hadn't chosen the absolute best one. Likewise, if you think you can tell me which one will have done the best 15 years from now, please tell me so I can, well, think about it. I own both HQL and PRHSX, have been very happy for a while now and expect to continue investing when there are dips. The one thing I prefer about PRHSX over PJP or IBB, and actually I prefer it over HQL as well but I like the venture capital, is that for a very small increase in expenses you get someone to work for you. Of course that doesn't mean they'll do better, but at least there's some thought to the process, and its cheap management compared to what you have to pay most fund managers compared to a passive alternative.
Thanks everyone for replies to my questions. I am not trying to tell anyone which funds to chose. On the contrary, I would like to learn from you. The information about tax treatment of HQL and HQH is very useful!
Everyone's situation is not the same, so comparing vehicles in which to invest in health care may not be a matter of apples-to-apples . HQL and HQH make considerable periodic distributions; these would be taxable events in a regular brokerage account. I hold HQL and THQ in a Roth IRA, so I welcome the reinvestment in new shares. I believe almost any stock or fund can participate in your broker's dividend reinvestment program(DRIP), not just the Tekla funds. CEFs are not MFs or ETFs, although they share similarities. If you trade actively, you can take advantage of dips or rises in the prices of CEFs; they are more volatile than the other two types of funds. You can trade ETFs actively, but it is very unusual for their underlying holdings to trade at more than a modest discount; when a CEF declines sharply and the discount widens, it's a buying opportunity. For myself, PRHSX is not an NTF in either of my two brokerage accounts or IRA. Trading costs for PRHSX rule that fund out for me. Is one type of fund better than the other? It depends…
@Ben - taken from the Tekla website regarding their managed distribution policy:
"The Fund has a managed distribution policy (the Policy) which permits the Fund to make quarterly distributions at a rate of 2% of the Fund's net assets to shareholders of record. The Fund intends, to the extent possible, to use net realized capital gains when making quarterly distributions. However, implementation of the policy could result in a return of capital to shareholders if the amount of the distribution exceeds the Fund's net investment income and realized capital gains. Under the Policy realized capital gains in excess of the total distributed would be included in the December distribution. The Policy is to declare distributions in stock, unless otherwise instructed by the shareholder. The Fund's distribution policy has been established by the Board of Trustees. The distribution policy may be changed by the Board of Trustees without shareholder approval."
So yes, one can probably request cash distributions but it's not the funds policy.
Comments
Regards,
Ted
M* Snapshot Of HQH: http://cef.morningstar.com/quote?t=HQH
M* Snapshot Of HQL: http://cef.morningstar.com/quote?t=HQL
Regards,
Ted
http://finance.yahoo.com/echarts?s=PRHSX+Interactive#{"range":"ytd","scale":"linear","comparisons":{"HQH":{"color":"#009999","weight":1},"HQL":{"color":"#cc0000","weight":1},"THQ":{"color":"#cc0000","weight":1}}}
Thanks a lot for this reply, it is an interesting explanation. Can you also plot HQH and HQL versus PJP and IBB which you can trade instantaneously? Of course, past performance does not guarantee much, but during the last 5 and 10 years PJP (pharma) and IBB (biotech) performed better than HQL and HQH. Both IBB and PJP are very tax efficient. How about HQL and HQH? I would really like to know it, I could not find this information in M*. Usually closed end funds are very tax inefficient, but maybe this rule does not apply to these funds?
"The Fund has a managed distribution policy (the Policy) which permits the Fund to make quarterly distributions at a rate of 2% of the Fund's net assets to shareholders of record. The Fund intends, to the extent possible, to use net realized capital gains when making quarterly distributions. However, implementation of the policy could result in a return of capital to shareholders if the amount of the distribution exceeds the Fund's net investment income and realized capital gains. Under the Policy realized capital gains in excess of the total distributed would be included in the December distribution. The Policy is to declare distributions in stock, unless otherwise instructed by the shareholder. The Fund's distribution policy has been established by the Board of Trustees. The distribution policy may be changed by the Board of Trustees without shareholder approval."
So yes, one can probably request cash distributions but it's not the funds policy.