Aberdeen Healthcare Funds Update (HQH, HQL, THQ & THW) - May 2025

Mike Taggart, Aberdeen's Head of Closed-end Fund Investor Relations, interviews Jason Akus, Aberdeen's Head of Healthcare Investments and a portfolio manager regarding the current healthcare marketplace. 

Transcript

Aberdeen Healthcare Funds

Podcast Transcript

May 2025

Mike Taggart: Welcome to the latest podcast for the Aberdeen Health Care Funds. I'm Mike Taggart, Aberdeen's Head of Closed-end Fund Investor Relations. With me is Jason Akus, Aberdeen's Head of Healthcare Investments and a portfolio manager for four of our health care funds, all four of them Aberdeen Healthcare Investors, ticker symbol HQH, Aberdeen Life Sciences Investors ticker HQL, Aberdeen Healthcare Opportunities fund ticker THQ, and Aberdeen World Health Care fund ticker THW. Jason, thank you for joining us today. 

Jason Akus: Hey, Mike, thanks for having me. I'm delighted to be here and always appreciate the opportunity to provide an update for shareholders and the advisors that follow us. 

Mike Taggart: Excellent. Well, hey, we're recording this in May. And the health care sector has obviously been volatile to start the year. Like everything else. The US government is clearly heading in new directions when it comes to health care. I'm wondering how that's affecting the markets and also how tariffs might affect the US health care industry, if at all. 

Jason Akus: Markets are always evolving, and certainly dynamic in 2025 has certainly been no exception. The new administration's domestic agenda has really intensified the debate around health care access, drug pricing and certainly even innovation. So it's creating a fair amount of uncertainty and, just this morning, today being May 12th, you know, we saw in the pre-market as large cap biopharma stocks declining and, and, the pre-market.

 But, you know, when markets opened up, we flipped green. And this is all on, comments following President Trump's executive order on most favored nation policy, which aims to tie U.S. drug prices to those in the lowest cost developed countries. Now, while the scope is unclear whether it will affect Medicaid or Medicare Part B or D or our negotiated drugs, but the market is certainly reacting to the uncertainty in ways that I thought are kind of unpredictable.

Mike Taggart: In this latest announcement is kind of just a microcosm of what's been going on since January. 

Jason Akus: Correct. 

Mike Taggart: Yeah. A little yeah, it's a vignette of it. 

Jason Akus: It certainly is. And there's been a lot of different things. And maybe we can touch upon on some of that earlier. But you know, I think one of the things to just comment on, you know, Trump in his first administration did try to implement most favored nation drug pricing, but it was actually blocked on procedural grounds.

You know, while CMS and Medicaid innovation can pilot programs, I don't know if it may actually take congressional action to get these things implemented. You know, another part of your question, you know, just on all this uncertainty, it is, you know, there's been a lot of, talk about sector tariffs and pharma. That's certainly kind of front and center on patent tariffs applied.

This will affect pharma companies and by tech companies on, you know, devices like imported. But I think while some exemptions will exist it could actually pressure margins short term. But that being said, healthcare products often have very high profit margins. And I think in the long run, I think the point of all these tariffs is really just to encourage domestic innovation and manufacturing.

So while the headlines may seem negative, I think the volatility is normal. Historically, periods of uncertainty have created Aberdeen's and Aberdeen and the funds that we manage really do focus on fundamentals. Companies with strong innovation, stable cash flows, adaptable business models and so long term drivers like aging populations and global health care demand will just remain intact and be a tailwind. Bring this into the future. 

Mike Taggart: Yeah. I mean, you've been doing this for, what, 25 years? I mean, you've seen a lot of volatility, in that time. 

Jason Akus: Yeah. No. We certainly have from Hillary tweets to Yellen saying biotech and price to Obamacare. You know, I think it's not fun living through the volatility. But when we can, when it starts to dissipate, we've just historically found those, you know, great times to be investing long term opportunities.

Mike Taggart: And so, you know, biotech especially seems to have come under pressure. You know, and that's obviously going to affect all four funds. But, you know, especially HQH and HQL which are heavily invested in that sector of the healthcare space. Can you give us a specific update on what's going on in that segment? Seems to be under more pressure.

Jason Akus: Yeah. I mean, I'm using this word and I think we hear this, you know, everywhere we look and what we read in the markets. But, you know, there's just a lot of uncertainty right now. Like other sectors, it's highly sensitive to sentiment. It's been impacted by regulatory headlines and some mixed clinical trial outcomes. But more lately with the new administration, there's a fear of tighter scrutiny on drug pricing, as we discussed earlier. And also, there are some concerns about regulatory changes that are also adding to the uncertainty. 

In this past March. A gentleman named Peter Marks, who's the long time Director of the FDA's Center for Biologics Evaluation and Research, otherwise known as CBER, resigned. You know, this is part of the FDA that approves the biologics. And, you know, he reportedly left due to conflicts with, secretary, RFK Junior's vaccine skepticism and kind of general philosophy about drug development. So too had this guy who been there for decades leave it shook investor confidence in biotech. You know, further aggravating this is replaced man. Vinray Prasad, who was just actually appointed to run cyber last week. He's really been known for his critical views on vaccine policy and certain drug approval processes. So needless to say, this has raised concerns about, you know, regulatory approval, drug development timelines.

And, you know, I think in the end, all this regulatory uncertainty has slowed M&A activity. You know, large pharma needs to buy smaller companies to keep the pipeline, full and to continue to grow revenues. But M&A is obviously a key sentiment driver in biotech. And now this has kind of been diminished in calendar year 2025. You know, I think that that kind of hurt sentiment.  

Now with all that negativeness, I would say and I think valuations are pretty depressed when we might look just kind of more recent history. But longer term, you know, with these depressed valuations, a lot of these companies are, you know, they're working on developing transformative therapies. And Aberdeen, we've historically excelled in identifying these opportunities and our team evaluates clinical data management quality, market potential, and for advisors, investors.

I think the message is still clear. Biotechs long term potential remains strong despite the short term volatility. 

Mike Taggart: So two part question here to keep things fair and balanced, I think, the first one you've already kind of answered. But first, where have you been facing the strongest headwinds across the portfolios? I think again, you've already kind of touched on that or answered it fully.

And then second, where are you finding the most attractive opportunities? Is there a certain sector, in there that's looking attractive right now? 

Jason Akus:  Yeah. I mean, I think we did highlight some of the, headwinds. And I feel like they're coming from every single direction forward, backwards, left and right. And as I try to point out, this can create opportunities.

But on the headwind side, I think policy uncertainty is just kind of front and center. You know, the drug pricing announcement from this morning, it's going to take a long time to try to figure sort out exactly what's going to happen. I think kind of more in the macro side, the, higher for longer interest rates compounded with tariffs. You know, I think that kind of depressing pre-commercial biotech firms, you know, these companies rely on capital and tend to thrive better in the lower interest rate environment. So this has been tough for them. 

On the bright spot, we seeing strong opportunities in medical technology, healthcare services and select biotech names. Medical technology is benefiting from a right rebound in elective procedures.

Managed care remains a sense of play with stable cash flows and biotech. As you know, I've said a few times, offers some compelling value. You know, especially in some of these small cap companies with low or even negative enterprise values and strong pipelines. So our focus is on identifying quality in these areas. And for advisors, the key takeaway is to diversify within healthcare, to manage risk and capture growth, which we think we do with our four different healthcare funds.

Mike Taggart: Finally, what are your views as to where the healthcare sector goes from here? So in other words, you know, why should investors consider investing in healthcare and specifically one of our four closed-end funds? 

Jason Akus: So 2025, as I described, know it's been been challenging. You know, when I looked at the performance this morning, healthcare slightly lagged that of the S&P 500. I think, you know, if we look back several weeks, in the beginning, the year healthcare was actually outperforming due to its defensive nature as investors thought stability and money, you know, economic, geopolitical uncertainty. 

More recently, our health care outperformance has faded due to all themes like the targets had been focused on the health care a little bit more than other sectors. 

So I think, to answer your question, why the health care sectors performance will depend on broader economic trends? And I think if the US does enter a recession, whether it's mild or more severe, I think health care really could outperform, thanks to its defensive characteristics. You know, and a strong economy, more cyclical sectors might lead in healthcare may underperform.

But, you know, those challenges certainly speak before. Healthcare is a pretty diverse sector with the 12 or more subsectors. And some of those have more kind of pro cyclical, characteristics that we can always lead into. But I think over the long term, health care remains a structural outperformer. Aging populations, you know, chronic disease, etc.. And innovation in areas like AI diagnostics, gene therapies, precision medicine will continue to drive growth.

The policy noise will persist for the time being, but I think our investment process is built to navigate it. And I think just to kind of wrap up, I think for clients, the messages stay invested in health care. You know, it really is a resilient sector with strong long term growth potential. And I'll leave you with a few points.

You know, first, volatility as normal health care sector is experiencing some short term turbulence. But this is part of the market cycle. As I just highlighted, long term fundamentals are strong aging populations chronic diseases, etc.. Good tailwinds. There's opportunities and innovation. And despite these headwinds, areas like biotech healthcare services offer compelling opportunities. 

Fourth, diversifying is a key. You know, within healthcare, diversifying cross subsectors can help manage risk and capture growth. And I think what our four closed-end funds do, and they kind of do it in different ways. But they do diversify. And then lastly I'll just leave you with, you know, stay invested. Healthcare is resilient, non-technical sector, you know, and staying invested through volatility has historically rewarded long term investors.

And at Aberdeen we focus on identifying those high quality companies with strong pipelines, stable cash flows and global exposure. That's the kind of resilience and opportunity we believe clients should be looking for.

Mike Taggart: That’s excellent. Thanks for the summation there at the end and for the comprehensive update. 

Jason Akus: Thank you Mike. It's always a pleasure to chair perspective. Look forward to speaking again.

Mike Taggart:  Well, there are three convenient ways to learn more about our health care funds. Visit our website Aberdeen investments.com. Second, you can email us at investor Relations at Aberdeen plc.com, or give us a call at 1-800-522-5465. I'm Mike Taggart of Aberdeen. Thank you for listening.

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