Aberdeen's Healthcare Funds Update (HQH, HQL, THQ & THW), featuring Portfolio Manager Jason Akus

Mike Taggart, Aberdeen's Head of Closed-End Fund Investor Relations, discusses the current trends in healthcare investing with Jason Akus, Aberdeen's Head of Healthcare Investments and the lead Portfolio Manager for abrdn Healthcare Investors (HQH), abrdn Life Sciences Investors (HQL), abrdn Healthcare Opportunities Fund (THQ) and abrdn World Healthcare Fund (THW).  

Transcript

Aberdeen Healthcare Funds 

Podcast Transcript

Mike Taggart: Welcome to the latest podcast for the Aberdeen Healthcare 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 the lead Portfolio Manager for abrdn Healthcare Investors, ticker symbol HQH, abrdn Life Sciences Investors, ticker HQL, abrdn Healthcare Opportunities Fund, ticker THQ, and abrdn World Healthcare Fund, ticker THW. Jason, thank you for joining us today.

Jason Akus: Thanks, Mike. Great to be back with you. I'm looking forward to the conversation. I hope the update is helpful for people who follow the funds in the healthcare market. And just to set the framework as we kick off the year, healthcare is both essential and investable. It's a big part of the economy—U.S. healthcare spending is about 18% of GDP. And it's one of the most innovative, driven sectors. So even when the market's attention is elsewhere, the underlying demand and product cycles tend to be durable.

Mike Taggart: Yeah, absolutely. There's plenty of reasons to invest in the sector. So like you just alluded to, we're recording this in early January. 2025 was a volatile year for healthcare overall, on a day-to-day basis, given the various news headlines. Yet in the end, Biotech had a very strong year. The NASDAQ Biotech Index was up about 25% on the year. The S&P Biotech Select Industry Index was up about the same. HQL and HQH are heavily invested in biotechs and their performance was right there with the indices, yet they're still trading at wide single-digit discounts.

So, I got a three-part question for you to kick this off. First, what happened in the biotech sector last year to drive those underlying returns? Second, what's your outlook for biotech in 2026? And third, why do you think HQH and HQL still trade at such wide discounts after their strong performance?

Jason Akus: All right, great question. So why don't we start with the first one? What drove biotech in 2025? In 2025, healthcare was volatile in the headlines. Policy, drug price chatter, the weight loss story, and some very company-specific issues in services and managed care were driving returns. But the sector wasn't the market's favorite narrative because attention stayed concentrated primarily in mega-cap tech and obviously the AI trade, the artificial intelligence theme. Inside healthcare, biotech was one of the areas where fundamentals and sentiment finally started to reconnect.

So what drove the biotech performance? First, the sector got more disciplined. After the excess funding period several years ago, many biotech teams tightened priorities—fewer projects, clearer endpoints, more focus on late-stage value creation, and a real emphasis on managing cash runway.

Mike Taggart: Second, meaning like the cash flows and not burning through it, generating cash, is that what you mean?

Jason Akus: I mean, just prioritizing pipelines and not exploring every little idea or science project. So companies rationalized their pipelines and really focused on getting assets to later stage, nearer to commercial stage launches. So I think that's really kind of what was driving that.

Second, as I was saying, the strategic bid came back. Large pharma has real pipeline replacement needs. And I think this has been one of those underlying themes within the space. But when quality and clinically de-risk innovation shows up, you tend to see partnerships, licensing and acquisitions. In 2025 did see quite a bit of that.

And third reason for driving biotech performance was the innovation engine really did stay real. The industry continued to deliver meaningful approvals and data readouts. So investors had more reasons to underline real products rather than just optimism. So putting it all together—better behavior, better balance sheets, a functioning M&A, a better partnering environment, and steady innovation output. That's really what drove the biotech returns in 2025.

In terms of outlook for 2026, I'm still pretty constructive, but I'm going to describe 2026 as going to be one of these stock picker years rather than a rising tide lifts all boats type of year. And here are the sign points we're watching. One, pipeline replacement becomes a forcing function, as I just mentioned in 2025. The same holds in 2026. Patent cliffs and lifecycle realities don't wait for sentiment to improve. That tends to support quality biotech, especially companies with differentiated assets and a clear regulatory pathway.

Two, policy and regulation become more modelable. We've always had pricing headlines, but a key milestone is that the first set of Medicare-negotiated prices takes effect in 2026. Whether you love it or hate it, what markets struggle with most is uncertainty. And over time, as policy becomes concrete, it can reduce the unknown premium investors assigned to the group. And I'd like to put the FDA in the same bucket. There's been plenty of noise, turnover, shifting narratives, and investors trying to handicap what the bar for approvals really is from quarter to quarter or day-to-day. But our expectation is this becomes less of a moving target as the agency operationalizes some very specific modernization efforts. For example, the FDA has been explicit about using AI tools to speed up repetitive review work, so scientific staff spend more time on judgment and less on manual processing. They've also pushed initiatives around greater transparency, including steps to make it clearer to the market what issues are driving certain outcomes. And they're encouraging more modern development approaches in places where it can improve the signal quality—things like better use of structured data and smarter trial designs where appropriate. So we're not assuming a world without surprises. This is biotech after all, but we do think the range of surprise can narrow as both pricing policy and the regulatory machine becomes easier to model.

Three, the bar rises for AI in biotech. In 2025, saying AI could be enough to get attention. In 2026, investors were going to want proof—faster trial enrollment, better targeting, lower cost per patient, higher probability of success. In healthcare, AI has to show up in outcomes or productivity, not just marketing.

And four, financing discipline remains a differentiator. Companies that can fund their plans without repeated dilutive raises have a strategic advantage, especially if volatility picks up. Now, for HQH and HQL, this is exactly why we focus on selectivity. We're not trying to own all of biotech. We're really just trying to own companies where we can underwrite scientific differentiation, a visible catalyst path, and survivable downside. So constructive into 26, just expect dispersion, and the gap between the best businesses and the rest could be wide.

Now, to your question on why do HQH and HQL trade at the discounts they're currently at, it's a really fair question, and we take it very seriously because discounts affect shareholder experience. I think a few things are happening. First, closed-end fund discounts are often driven by sentiment and technical flows, not just fundamentals. So even though when NAV is performing, the market price may need time to re-rate. Second, when NAV moves up quickly, like we saw in 2025, the share price has to move even faster to narrow that discount. So the catch-up doesn't always happen in a straight line. And third, healthcare has been underowned in recent years relative to large cap narratives. That positioning can keep discounts sticky even after a strong period of good fundamentals. So the simple way I'd say it is that NAV can outpace sentiment, but we stay focused on compounding NAV with discipline and letting the discount normalize over time.

Mike Taggart: Right. I was just asking that third question because just to get your perspective, I mean, obviously you're managing the portfolio. Your primary is looking at the NAV and managing the NAV. You know, I'd throw a fourth thing in there for the discount as well is the uncertainty you mentioned around, especially around the FDA.

So now, you've touched on a little bit, but broader healthcare. So, THQ and THW are broader healthcare funds. So, broader healthcare once again underperformed the S&P 500 in 2025. So, would you give us a brief recap of the year for broader healthcare? Again, you touched on a little bit already. And then your outlook for the various sectors going forward as they relate to both THQ and THW.

Jason Akus: Thanks for the question. Yeah, 2025 was a year where markets attention in healthcare was pretty concentrated, as we were just kind of spent the last few minutes discussing, you know, biotech was one of those good sectors to be positioned as an overweight. Obviously, for the broader market, large tech and AI themes did continue to dominate. That being said, healthcare didn't necessarily do poorly, but it did lag because it wasn't the market's favorite narrative. That said, as we move into 2026, I think sentiment can improve now that expectations have really been reset going back now a few years. Healthcare still has multiple durable drivers. Many of you appreciate these drivers—the demographics, aging population, chronic disease prevalence, and an innovation cycle that doesn't stop just because the market isn't excited about something.

Now, looking across the main U.S. healthcare segments through the lens of THQ and THW, first, we continue to like large-cap pharma and biopharma. This remains a cash flow anchor. The big question is pipeline replacement—who can combine internal R&D with smart partnering and acquisitions? We also watch how companies navigate the evolving pricing landscape, but we think the strongest operators can continue to compound.

Second, medtech and devices. We like the combination of innovation and real-world utilization. We're watching procedure volumes, adoption curves, and faster-growing categories, in which companies have durable differentiation rather than just cyclical tailwinds.

In the healthcare services and managed care space, this has been a headline-sensitive subsector. Utilization trends, reimbursement dynamics, and medical cost trends have been a challenge in 2025. As we move into 2026, selectivity is key, and we'll look for businesses that can demonstrate underwriting discipline and operational execution, because cheap can stay cheap if the fundamentals are unstable. So we're trying to find the best of the group to lead the recovery into 2026.

Another area that is of particular interest for our funds, for THQ and THW, has been the tools and diagnostics space. This group has been digesting a post-COVID normalization, and demand has been fairly uneven over the last few years. But strategically, tools and diagnostics remain critical to the healthcare innovation pipeline. We focus on companies with strong moats and identifiable inflection points.

And finally, tying it back to the portfolios, THQ and THW are built to balance offense and defense within healthcare, participating in innovation while maintaining exposure to more durable cash flow businesses and using portfolio construction to manage volatility through the cycle.

Mike Taggart: Okay, great. So finally, there are so many exciting developments in biotech and healthcare. Probably historically, there always were, right? But we have the weight loss drugs, so much going on with diagnostics, like you say, the implications for AI in all aspects of healthcare. How do you and the team weigh all of this when investing, when you're constructing the portfolios and determining how much to invest in a stock or maybe not investing in a company at all?

Jason Akus: Wonderful question, and it's always a challenge, but I think this is the fun part of the job. And that's also part of the discipline because healthcare always has something exciting happening—not just in one place, but many facets of healthcare always has something exciting going on. But exciting doesn't automatically mean investable today at today's price. We use a few consistent filters.

First, does the product translate science into a business and does it impact patients? Who is the patient? What change can this product bring in terms of the standard of care? What's the reimbursement path? What does adoption look like in real world?

Second, probability and timing. In biotech especially, timing really does matter. I've always said that pre-commercial biotech is something, you know, they're companies or stocks that we rent and don't own long term. We may have underlying positions long term, but you always have to zig and zag. So a great clinical story can still be a rough stock if it's underfunded or if the next catalyst is too far away. So there's a lot to be considered when we're trading and investing in biotech.

And third, position sizing is really just about risk management. We size larger where we have multiple ways to be right, strong balance sheets, diversified revenue, repeatable execution. And I think what really matters is valuation and what are the upside, downside scenarios in any type of outcome. Obviously, we size smaller when outcomes are more binary. And when we have greater confidence, we've sized positions to win and make them meaningful contributors to the portfolio.

On specific themes, you mentioned the obesity market, metabolic health, and weight loss drugs. We see this as an important category still. It's been a multi-year reshaping of cardiometabolic medicine, and it can create direct winners. And also there are a lot of second order impacts across the system with other companies and tech and diagnostic space, but we're enthusiastic, but we're careful about the competitive dynamics and long-term assumptions, since it is a crowded market.

Diagnostics, which we've touched on, remains a big focus. Diagnostics are the basis of making decisions in the healthcare system and tests that change clinical decisions, improve outcomes, and have defendable reimbursement pathways remain very attractive and a priority for our portfolio management team.

And lastly, I got to mention AI, but AI in healthcare will become a greater and greater importance in the industry as its technology gets permeated throughout the system from clinical and preclinical development to the management of healthcare services. But our litmus test is simple—you know, does it improve outcomes or productivity in measurable ways? This shortens clinical trials, improves imaging interpretation, reduces administrative burden or improves safety. I think that's kind of an investible theme. If it's just a buzzword, we'll just pass.

And so across the four portfolios, the same discipline applies. HQH and HQL, I think we're going to continue to do what we've been doing and lean into innovation and catalysts. And THQ and THW, we're going to balance innovation with durability and portfolio construction because shareholders experience real-world volatility and we want to manage those portfolios with that in mind.

Mike Taggart: Thanks, Jason. That was an excellent in-depth overview. Really appreciate it.

Jason Akus: Thanks, Mike. Really appreciate it for you having me on and look forward to chatting with you guys as the year progresses. And thanks to our shareholders for listening in.

Mike Taggart: Well, there are three convenient ways to learn more about our four healthcare funds. You can visit their individual websites, abrdnhqh.com, abrdnhql.com, abrdnthq.com and abrdnthw.com. Second, you can e-mail us at investor.relations@aberdeenplc.com or give us a call at 1-800-522-5465. I'm Mike Taggart of Aberdeen. Thank you for listening.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for informational purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments or products mentioned herein, and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen. The companies discussed in this podcast have been selected for illustrative purposes only, or to demonstrate our investment management style and not as an investment recommendation or indication of their future performance. The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates, and provide no guarantee of future results.