THQ CEF: Offers An Attractive Yield And Trades At A Discount

Doctor shaking hands with corporate business man for deal, meeting and healthcare contract. Handshake, consulting and b2b partnership in medical office for opportunity agreement and insurance support

shapecharge/E+ via Getty Images

The Tekla Healthcare Opportunities Fund (NYSE:THQ) had an inception date of July 28, 2014. It employs a growth and income investment strategy across all healthcare sub-sectors.

(Data below is sourced from the Tekla Capital Management website unless otherwise stated.)

Investment Philosophy

The Tekla management team believes that aging demographics and adoption of new medical products can provide long-term good performance for healthcare companies. They invest in 11 sub-sectors which include biotechnology, healthcare technology, managed care and healthcare REIT’s.

Sector Allocation

Sector Allocation for THQ (Tekla web site)

The portfolio manager is Daniel Omstead, PhD who has 40 years experience and has worked at Merck, Johnson & Johnson, CytoTherapeutics, Retrogenesis and JP Morgan. He is backed up by an investment team of eleven professionals with impressive credentials

THQ is currently trading at a discount to NAV of -11.43% compared to the 6 month average discount of -9.99%.

The longer term Z-scores for THQ are all negative, which means the discount is well above average for these time periods.

3 month Z-score= -1.30

6 month Z-score= -1.32

1 year Z-score = -1.43

(Source: cefconnect)

THQ is primarily invested in larger cap healthcare stocks, but they also have smaller allocations to non-convertible notes, convertible notes and short term investments.

Top 10 holdings

Top 10 Holdings THQ (Tekla web site)

Asset allocation

Asset Allocation THQ (Tekla web site)

Distributions

THQ has a managed distribution policy They have consistently paid out £0.1125 per month over the last few years.

Distribution Ex-Date

Payment Date

Amount

03/17/2023

03/31/2023

£0.1125

02/17/2023

02/28/2023

£0.1125

01/19/2023

01/31/2023

£0.1125

12/16/2022

12/30/2022

£0.1125

11/18/2022

11/30/2022

£0.1125

10/19/2022

10/31/2022

£0.1125

09/19/2022

09/30/2022

£0.1125

08/19/2022

08/31/2022

£0.1125

07/20/2022

07/29/2022

£0.1125

06/17/2022

06/30/2022

£0.1125

05/19/2022

05/31/2022

£0.1125

04/20/2022

04/29/2022

£0.1125

Click to enlarge

THQ Historical NAV Performance Record (as of March 27, 2023)

Total Return THQ (NAV) Health

5 Years

+9.65%

+ 7.24%

3 Years

+13.93%

+10.14%

1 Year

– 7.21%

– 5.89%

YTD

– 5.32%

– 2.77%

Click to enlarge

(Source: Morningstar)

THQ has produced good performance since its inception in 2014.

In spite of paying out generous monthly distributions, the current NAV of £20.68 is still well ahead of its inception NAV of £19.06.

THQ: Three Year Discount History

discount history

THQ Discount History (cefconnect)

Institutional Ownership (as of Dec.

31, 2022)

Institutional investors own about 21% of the shares outstanding. I do not see any activist investors among top holders. Morgan Stanley and Raymond James are the top two holders which are probably shares held by investment advisors for their clients.

I believe it is unlikely that THQ will be targeted by any activist investors in the near future.

Renewal of Share Buyback Program

On March 16, 2023, THQ announced a renewal of its share repurchase program. The current program allows the Fund to purchase up to 12% of shares outstanding for the one year period ending July 14, 2023. The renewal allows the Fund to purchase up to 12% of its outstanding shares for the one year period ending July 14, 2024.

The share repurchase program is intended to enhance shareholder value and potentially reduce the discount between the market price of the Fund’s shares and the Fund’s net asset value.

Unfortunately, during the years ended September 30, 2022 and September 30, 2021, the Fund did not repurchase any shares through the repurchase program.

But the recent increase in the THQ discount, may be the catalyst need for the Fund to start using the repurchase program.

Comparison To Sister Fund

Tekla World Healthcare Fund (THW) is a “sister” fund to THQ. THW has a bit more of a global orientation, but is quite similar to THQ. The correlation between the two funds 0.83.

But the correlation of the NAV’s of the two funds is 0.96.

The main problem with THW is that it trades at a 8% premium above NAV. The premium price is partially due to the high distribution yield of THW, which is 10.45%. This yield is a managed distribution, but the total return NAV performance of the fund has underperformed THQ.

On Fidelity, THW is “hard to borrow” and short sellers are paying 10% interest to borrow the shares.

These borrowing fees paid by short sellers are likely also adding to the premium, since investors who participate in share lending programs can earn about half of this fee from their broker.

I would definitely choose THQ over THW at the present time.

Comparison to Vanguard Health Care ETF (VHT)

For long term buy and hold investors who are not active traders, it may be better to invest in VHT, rather than THQ. The correlation between VHT and the NAV ticker for THQ is 0.97, so the two funds are very similar. But VHT has an expense ratio of only 0.10%, while the expense ratio for THQ is 1.46%.

An active investor or trader who can exploit differences in the discount of THQ may be able to outperform VHT.

An investor who is strictly buy and hold may do better owning VHT over the long term.

(THQ) Tekla Healthcare Opportunities Fund

  • Total Investment Exposure= £1080 MM
  • Total Common Assets= £855 MM
  • Annual Distribution Rate= 7.37%
  • Dividend Frequency= Monthly
  • Current Monthly Distribution= £0.1125 per share (£1.35 annually)
  • Baseline Expense ratio= 1.46% (omits interest expense)
  • Discount to NAV= -11.46%
  • 6 month Avg. Discount= -9.98%
  • Leverage= 20.83%
  • Average 3 Mos. Daily Trading Volume= 113,000 shares
  • Average 3 Mos.

    Daily £ Volume= £2,000,000

Sources: cefconnect, Yahoo Finance

THQ trades over 100,000 shares a day. Normally the bid-asked spread is only one or two cents a share. But care should be taken when executing orders since the bid-asked spread sometimes widens to five cents or higher.

I would recommend using limit orders or smaller market orders.

ed-place listed on couponmatrix.ukgetgeared listed on couponmatrix.uknasty-gal listed on couponmatrix.ukplusnet listed on couponmatrix.uksnag-tights listed on couponmatrix.ukspotify listed on couponmatrix.uk
ed-place listed on couponmatrix.ukLooking for an EdPlace discount code? You've come to the right place! Check out our selection of deals at EdPlace and save on your next order. Whether you're looking for a new maths tutor or some resources to help your child catch up, EdPlace has you covered. Online learning may just be what’s needed to give your kid the edge on their exams, so explore digital learning resources at EdPlace and help your youngster achieve. At Groupon, we know that saving money is important to our customers. That's why we work hard to find the best EdPlace discount codes and EdPlace voucher codes. We want you to be able to get the resources you need at a price that fits your budget. So whether you're looking for a new tutor or some extra resources, be sure to check out our selection of EdPlace codes before you checkout. You might just find the perfect code for your needs! If you're looking for high-quality resources to help your child succeed in school, look no further than EdPlace. Their team of experts have put together a range of resources that are perfect for catch-up, revision and practice. And with our EdPlace voucher codes, you can get them at a great price! So why wait? Get started today and see the difference EdPlace can make to your child’s intellect.
getgeared listed on couponmatrix.ukGetGeared are the number one motorbike retailer, including everything from leathers, helmets, casual wear, gloves, body armour, boots, rain gear, eyewear and more. GetGeared started off as one of the first web-based shops for motorcycle clothing and accessories in the UK and you’ll love using a get geared discount code on us to save money on your order!
nasty-gal listed on couponmatrix.ukCalling all fashionistas - Nasty Gal is your go-to for fresh wardrobe picks. Nasty Gal began as a vintage clothing eBay account in a tiny San Francisco apartment, and quickly became one of the hottest fashion brands on the planet. Make the most of a Nasty Gal promo code to save on an effortlessly cool ‘fit. Stocking everything from grungy denim to head-turning party dresses, Nasty Gal is all about fearless fashion that doesn’t take itself too seriously.
plusnet listed on couponmatrix.ukIf you're searching for award-winning, money-saving mobile and broadband, Plusnet is the place to be. Enjoy reliable speeds for less with a Plusnet discount code and bump up your budget within a few clicks. As well as providing great-value deals, Plusnet's no-nonsense support network is five-star rated too. So excellent, in fact, Plusnet has won the Best Provider Customer Service in the uSwitch Awards for the sixth year running.
snag-tights listed on couponmatrix.ukWhatever your size, shape or style, Snag Tights have a fit for you. Embracing the weird and wonderful world of tights with all the colours and patterns imagination can conjure, rest assured there’ll be a design you adore just waiting to be bought for less with a Snag Tights discount code. Endlessly endeavouring to produce fun and themed legwear that’ll make every outfit pop, it’s easy to see why so many stride with pride in a pair of Snag Tights.
spotify listed on couponmatrix.ukThe days of carting around stacks of CDs or downloading song-by-song are long gone. Spotify is a music lover’s dream, granting access to millions of albums and podcasts directly from the Spotify app. Whether you prefer your guilty pleasures, learning something new or creating public playlists, there’s so much to enjoy about this music subscription service. Unlock Spotify Premium for less with student or family accounts, and by making the most of Spotify discount codes from Groupon.